Have you ever let a small debt to a utility company, or a mobile phone company lapse and forgotten about it? It may seem like a really minor thing, especially if it is a small amount, but in the eyes of many home loan lenders that is a deal breaker. These are called defaults and they stay on your Comprehensive Credit Report (CCR) for 5 years. YES, FIVE YEARS!!
So, if anything is coming to mind to you now – probably a good time to get it sorted. In case you want to apply for a home loan down the track.
If you have a default on your CCR, you can arrange to pay it and get a letter to say that it has been settled. This may give you a chance with some lenders.
So, what is your Comprehensive Credit Report?
Prior to March 2014 Australia’s Credit Reporting was pretty basic, just including defaults and bankruptcies. But in March 2014 new laws enabled more information to be included on credit reports, and the name was changed to Comprehensive Credit Reporting (CCR). The CCR now includes credit enquiries and credit card repayments.
This brought Australia roughly in line with the US and UK credit reporting system and now provides a lot more information on your credit life. For a history on credit reporting in Australia visit this site.
The CCR is basically an overall record of your credit conduct from the past two years, except for defaults which stay on your CCR for five years (did I mention that?).
At the top of your CCR there is a Comprehensive Score. In general, anything over 700 is seen as no problem by lenders and anything under 600 is a problem. A score in between 600 and 700 is going to be lender dependant.
Other than defaults, what else causes a low credit score
Your CCR is looking for how stable you are. The things considered include:
- How long you’ve been in your job
- How long you’ve been at your address
- If you have a landline!! Yep, you read this right
- How many loan enquiries you’ve made
- If you’ve used any Payday Lenders or short-term lenders (yes, this includes Zip Pay etc)
- Whether you are up to date with credit card payments
Beware of Payday and Short-term Lenders like Zip Pay
So, Payday Lenders and Short-term loans including Zip Pay are looked on unfavourably. These indicate on paper that you are not managing payday to payday and needing to get short-term loans to tide you over. Or worse, that you are living beyond your means. If you can develop your own system for savings, or manage a low limit credit card, you will improve your Credit Score.
Beware of too many loan enquiries
Every single enquiry for credit is detailed on your CCR, this includes appliance hire, solar, personal loans, interest free furniture loans etc…. everything. And the report sums it all up to say exactly how much credit you’ve applied for in total over the past two years.
So beware, every time you get a phone call or letter from a lender offering you an increase or a new credit card, and you go through the process of applying, you’ll get another enquiry added to your credit report.
Lots of enquiries on your CCR look bad and result in a lower Credit Score. Again, it is seen as reactive and possibly desperate. Think about how you manage your income, perhaps you even need to work out a budget so you can put away some emergency money. We can assist you to come up with a long-term plan for your lending that is strategic rather than responsive. Let us know if you’d like some help.
Beware of late credit card repayments
Every month you need to make your payment on time for your credit card repayment. It is easy to miss it by a day or two, or even forget for a couple of months. But the problem now, is that this is easily seen on your CCR.
Below is an example of what appears on your CCR for every credit card you hold. This example looks good.
But this one is not so great….one month they are up to 119 days overdue. That sort of detail is going to negatively affect your Credit Score.
Below are the codes they use on your CCR.
The moral of the story is to stay up to date with all of your lending repayments. Put them on autopay, use second and third bank accounts to help move repayments out of your spending accounts. If you get into trouble with your loans come and see us. We can help you get back on track.
Beware… if you haven’t had any credit, you’ll struggle getting a home loan
Just like some of the things above can make it difficult to find a lender to help you get a home loan, never having had credit in your past will also make things difficult.
Now when we say, difficult, we don’t mean you can’t. We are experts at finding successful finance for our clients to help build their property dreams. Don’t despair, come and talk to us. Worst case scenario – we will set you up with a strategy to clean up your CCR and get you in a position where you can get a home loan. Best case scenario… successful finance!
Beware of Free Credit Reports online
Free Credit Reports available online are not true credit reports. These reports take up to 10 days and they do not include your Credit Score. You either need to pay for it, or you can apply for one in the event that you credit was declined. Either way, though, we are not sure if this puts another enquiry on your CCR.
Alternatively, talk to us. We can have one for you in 10 minutes and we will cover the cost.
When we generate a CCR for you, it doesn’t show up as an enquiry.
Can you fix a low CCR Score?
Some things can be removed and your CCR improved, pretty much anything that is a mistake, see the image below. You can also fix things to a certain degree by paying out any defaults or overdue repayments and getting letters from your lenders to show that this has happened and provide explanations around your defaults and overdues. This will sometimes have a positive outcome. This is an area we specialise in.