Credit files remain a bit of a mystery to most consumers. So I’ve asked three experts to lift the lid on some of their insider secrets you won’t hear anywhere else.
I have a credit record? Huh?
Heidi Armstrong, State Custodians Mortgage Company:
A lot of first home buyers say to me ‘I don’t understand how I have a credit report. I’ve never applied for credit. I don’t know where my credit report is. How do I have a credit report?’
A credit report gets created the very first time you apply for credit. And that isn’t just when you apply for a home loan. It may be that you’ve applied for a personal loan or a credit card. Now that’s when your credit file will get created. What happens from there is that every time you apply for credit there’s a hit on your credit report. That hit means that the lender is looking at your credit history. At the same time they’re looking at your credit history they are creating a notation on your credit file that says they’re applying with you for a loan amount of ‘x‘ or a credit card amount of ‘x‘.
My advice to first home buyers is, it’s not the worst thing in the world to actually have a credit file already in existence when you go to apply for a home loan. It demonstrates that you understand credit, you’ve had some sort of credit in the past, and that you’ve been responsible.
You want to be responsible with your credit because the last thing you want is having a default on your credit file. Defaults get recorded [for example] if you’ve had a credit card and you haven’t paid it, your lender’s going to put a notation on your credit file. Trust me, that is going to negatively impact your ability to get a loan.
Do I come under more scrutiny if I get Lenders Mortgage Insurance (LMI)?
Bridget Sakr, Genworth:
Yes. If you purchase a property with less than a 20% deposit of the purchase price, you will require LMI. LMI protects the lender from your default and not you. In order for LMI to be approved, you will undergo a volley of creditworthiness assessment.
We are a mortgage insurer, we are assessing the risk. And therefore we are providing that additional oversight, and we will carry out credit checks ourselves.
How do people with bad credit record get a loan?
Binny Singh, NAB:
If you have bad credit and you come to me wanting to get it in order, we look at your situation, we put your details through our lending criteria systems which go through to our centralised credit team. From the conversations we have with our customer, we go to bat on behalf of the customer.
So we say to credit that we believe that the customer would like to get their credit in order, and this is the solution. They take that plan and willingness into account.
The final word
Credit files are the Father Nick of the adult world; always looking down on you, at the ready with an invisible report card that is continuously recording your deeds, be they good or bad. Maintaining a good credit file will alleviate many headaches when it comes to applying for a loan of any kind.
originally posted on realestate.com.au