From 1 July 2023, there are changes in support for first home buyers in Australia.…
What Is Bad Credit?
It is an easy mistake to associate someone with credit issues as an irresponsible person. The truth is that many people can fall into trouble through a variety of different factors. For most cases, individuals with credit rating issues have gone through a tough patch such as divorce or losing an income and as a result, some financial missteps have swiftly been recorded on their credit history.
If you have ever failed to pay a debt or bill on time, there is a good possibility that it has been recorded on your credit history. The following factors will usually be recorded and seen as undesirable by banks and lenders:
Bills that have not been paid – Tax bills and council rates may not initially be seen on your credit history but may surface when you need to provide supporting documents to accompany your application.
Too many liabilities – Banks may see you as insolvent and over committed if you have too many liabilities and not enough assets.
Missed payments or defaults on your loan – Banks take this seriously and will most often refuse to refinance your mortgage even for a single missed payment.
History with lenders – If you are applying for a lender that you have credit history with, know that lenders usually have a very good memory. If you’ve ever had trouble in the past making payments with the lender that you are currently applying with, be prepared for this credit history to be dug up.
Company troubles – If you head up an organisation that has seen financial strife, or has gone into administration or liquidation, this will affect your personal credit history.
Crosses against your credit – Anything to do with credit enquiries, bankruptcy, defaults on a loan, court orders or excessive enquiries will give you trouble when making a future loan application.
The not so good news is that credit history goes back a long way. If you have had trouble in the past making payments on a loan, but are now in control of your finances, this will still show up on your credit history many years later.
How To Check Your Credit Score
Your credit score is made from your financial information held within your credit report and is checked by lenders for them to make the decision on approving you for a loan or credit.
Your credit rating is worked out from the information given in your credit report. Factors such as the amount of money that has been borrowed, how many applications you have made in the past and if you’ve been able to make payments on time, all come in to play. This comes together to give you a rating within a five-point scale of excellent, very good, good, average, and below average. If your score is high, the lender will be at ease and more likely to accept your application. You also could have the opportunity to get a better deal on your home loan.
Some good news is that you have the right to access your score for free from a credit rating provider and potentially work at repairing your rating if necessary. It is available in ten days unless you are willing to pay to have it sooner. Knowing your credit rating is paramount for negotiating and understanding your position in front of a lender.
Your credit report will hold important information, such as applications made in the past, your repayment history, any history of debt and bill defaults, credit products under your name, bankruptcy or debt agreements and any past requests for your credit report.
When you have your credit report, it is important to ensure that everything is in order and the debts and loans are yours. It is free to fix any errors or information out of place. There are also credit repair agencies that specialise in helping clean up credit reports. It is worth speaking with either an agency or a solicitor to work out whether some of your bad credit entries could be removed, giving you a better chance at a future loan approval.
Get A Loan Despite Your Credit Issues
It is easy to begin feeling helpless and hopeless if you have credit issues. Thankfully, while most banks and lenders may decline an application due to a bad credit rating, there are many specialists and non-conforming lenders that are willing to take a look. These types of lenders will listen to your side of the story on what went wrong with your finances in the past and hear your case of how a home loan would be a good idea for your situation. When applicants are attempting to consolidate their debt, these specialist lenders can be flexible enough to approve home loans to meet creditor deadlines.
How to Apply For A Loan
Applying for a loan with credit issues obviously is not completely straightforward. Professional advice from a qualified mortgage broker should be obtained before making an application, to ensure you find the right loan for your circumstances and avoid any knock backs, which could potentially cause further damage to your credit. A mortgage broker will be able to work out which lender would be most suited to your financial situation and most likely to approve your application. If you are completely honest with your mortgage broker, they will be able to talk about your credit history with the lender’s credit department, to work out a solution.
Depending on how dire your situation is, it might be necessary to apply with a specialist lender. Specialist lenders usually won’t use credit scoring, so instead of pulling up your bad credit rating, your application will be assessed by someone who is able to look at your individual situation and use this information instead to make their decision on your application.
To make your application stronger, you might need to show that your financial situation has improved, with evidence of bills and debts being paid on time, as well as showing some regular savings. Interest rates for specialist lenders are often higher than mainstream lenders, and the price of their loan products vary with the amount of risk involved. Most applicants will utilise these specialist loans however, to improve their financial situation and then go on to refinance at a lower rate.
Also, if you can manage to muster up 20% of your loan deposit, as well as your legal fees and stamp duty, then you can avoid lenders mortgage insurance (LMI). This means that the mortgage insurer will not need to assess your application on top of the lender’s assessment, giving you a better chance of approval.
Get in Contact Today
It has never been a better time to take control of your financial situation. Call 0492 957 416 and make an appointment to speak to our mortgage broker Fiona Haasnoot about debt consolidation or a new home loan.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product
Licensing Statement: Credit Representative 525053 is authorised under Australian Credit Licence 389328.