Damaging your home borrowing power is easier than you think: Heidi Armstrong
Forgetfulness is one of the biggest contributing factors to damaging your borrowing power.
Forgetting to pay a phone bill on time or letting a credit card bill slip by a couple of days can be detrimental to your credit rating when applying for a home loan.
Your credit rating is a prized possession and most Australians probably don’t realise how it’s calculated.
All credit providers including lenders, banks and non-banks subscribe to consumer credit reporting agencies so that they can conduct credit history checks on potential borrowers.
Many people don’t realise just how big the impact of a forgotten bill can be.
It can be difficult to accept that something as small as an unpaid phone bill listed years ago can prevent you from securing a home loan – but the reality is this can severely impact your ability to buy your dream home.
Defaults are looked at as poor conduct. Any defaults over $500 can significantly damage your ability to get home loan approval.
The largest consumer credit reporting agency in Australia – Veda Advantage – uses a credit scoring system to provide credit providers with a measure of assessing risk.
The lowest possible credit score is -200, and the highest is 1200. If you have a repayment of more than $100 overdue for 60 days or more, this can be listed on your file for five years.
One of the very first things that your lender will look at when assessing your home loan application is your credit score.
A payment default can easily contribute to a drop of more than one hundred points in your rating. This drop could make the difference between getting your home loan approved and having your application rejected.
But it’s not all bad news.
Having a low Veda score on its own doesn’t always mean your loan application will be declined.
People with low ratings can sometimes redeem their chances with good equity, long-term employment or a strong net asset position.
Understanding how your credit file is calculated could help to prevent you from damaging your own borrowing power.
My simple advice is – pay your bills on time, every time, to ensure your credit rating is protected at all costs.
Heidi Armstrong is chief executive of State Custodians Mortgage Company.
