Credit Report 101: A Beginner’s Guide

Have you ever wondered how lenders decide whether to grant you that coveted home loan? Your credit report holds significant importance in their decision-making process. Think of it as your financial report card, showcasing your payment habits and borrowing history.

Since the introduction of the Comprehensive Credit Reporting (CCR) rule in 2019, your credit report has become even more important. In this article, we’ll break down what you need to know about credit reports and explain why your credit score plays a crucial role in your journey towards homeownership. Let’s dive in!

What is a credit report and why is it important?

A credit report summarises your credit behavior and financial profile compiled by credit bureaus. It includes your credit score, credit products, repayment history, personal information, defaults, credit applications, bankruptcy records, and credit report requests.

Lenders use this report, based on factors like credit applications, debt, repayment history, and bankruptcies, to assess your creditworthiness. A higher credit score shows the lender that you are a less risky borrower. This, in turn, improves your chances of getting approved for a loan and could even result in a better interest rate.

In some instances, a credit report can contain a false or incorrect entry. That’s why it’s so important to check yours regularly.

If you’d like to access your credit report, please get in touch.

Can you get a mortgage with bad credit?

Despite having bad credit, obtaining a mortgage is not impossible. Here are some steps you can take:

  • Verify your credit history: Ensure your credit score’s accuracy by checking for any errors or signs of fraud/identity theft. If you come across any inaccuracies or outdated information, simply contact the credit reporting agency and request a correction. This is a free service.
  • Consult a mortgage broker: Mortgage brokers can help you explore loan options tailored to your needs and guide you through the application process.
  • Approach a specialist lender: Certain lenders specialise in ‘bad credit’ home loans, considering personal circumstances that may have affected your ability to repay in the past. A mortgage broker can help you find a specialist lender if this appeals to you.

Bad credit home loans often come with less favourable terms due to the higher risk for lenders. This could mean higher interest rates and fees. It might be wise to improve your credit score before borrowing to access more competitive loan options.

Tips to improve your credit score

To secure a favourable home loan, improving your credit score is crucial. Here are some key tips:

  1. Manage credit card balances: Keep balances low and within the credit limit. Pay off balances in full or more than the minimum payment.
  2. Use credit responsibly: Avoid maxing out cards, make timely payments, and don’t take on excessive debt.
  3. Limit new credit applications: Apply only when necessary to avoid numerous hard inquiries.
  4. Review your credit report: Regularly review for changes or errors, promptly reporting discrepancies. Seek assistance from financial counsellors for guidance and support in managing finances.
  5. Pay your utility bills on time: Late payments can harm your credit score. You can automate payments to ensure timely transactions. It showcases responsibility and avoids late fees.

By following these tips and maintaining responsible credit management, you’ll improve your credit score and enhance your chances of securing a first home loan.

Your next steps?

If you’re considering a home loan but need to improve your credit, give me a call. We can work with you to find finance suited to your needs.

To talk through your options, get in touch today. We’re here to support you and ready to address any inquiries you may have.

Mastering the settlement process – What every homeowner should know

There’s nothing quite like the buzz of seeing those words in your inbox: Confirmation of settlement of your property purchase.

Settlement day can be both exciting and stressful. But once the formalities are done, it’s all worth it.

If you’re planning a property purchase and are new to how settlement works, here’s a rundown.

What is settlement day?

Settlement day is when ownership of a property is legally transferred from one party to another. It’s facilitated by your legal and financial representatives, and those of the seller.

The actual date is stipulated in the sales contract.

Settlement periods are generally 30 to 90 days from when the sales contract is signed by both parties. However, settlement can be longer or shorter if mutually agreed upon.

What happens on settlement day?

On settlement day your solicitor or conveyancer meets with your lender and the seller’s representatives to exchange paperwork.

Typically, the buyer and the seller do not need to be present.

Your lender and conveyancer will arrange the following with the seller’s representatives:

  1. The balance of the purchase price, along with any government fees and duties, is settled. All outgoings such as rates, water charges and strata fees are adjusted between the seller and the buyer (you pay for these from the day after settlement).
  2. All necessary legal documents are completed and lodged with the respective agencies.
  3. The certificate of title is transferred to your name and the property is legally transferred to you.

Once settlement is completed, the keys are handed over by the real estate agent and the property is all yours!

How to prepare for settlement?

1) Be organised with the paperwork.

For settlement to run smoothly, it’s important you provide all the necessary paperwork in a timely manner.

For the finance side of things, we’ll walk you through the documentation required for your loan application.

You’ll also need to work with your conveyancer to complete and submit all the necessary documentation to transfer the property title to your name.

Prior to settlement, your conveyancer or solicitor will likely get you to review the settlement statement, which outlines exactly what you will be paying on settlement day.

2) Complete a pre-settlement inspection

You’re entitled to inspect the property in the lead up to settlement to ensure it’s in the same condition as when the sales contract was signed. The last thing you want are hidden surprises when you open the front door.

3) Organise insurance

Make sure you check the date when you need to have your building insurance sorted. It may be from when you sign the sales contract, or by settlement. Rules vary by state and territory.

Ready to get started?

As your mortgage broker, we’ll organise pre-approval on your home loan and get your loan application over the line, so that everything runs smoothly come settlement day.

Get in touch today and let’s chat about your exciting new property purchase.

Escaping mortgage prison

Stuck in an expensive home loan and feeling trapped?

You’re not alone. It’s estimated about 16 per cent of households with a mortgage are in a “mortgage prison”, unable to refinance to a more competitive interest rate because they can’t meet strict serviceability rules.

But there may be a way out. And we can help.

What is mortgage prison?

A mortgage prison is when you lack the equity or can’t meet the serviceability requirements (the “stress test”) to refinance your home loan. As a result, you become shackled to a mortgage you may no longer be able to afford.

What is the serviceability buffer?

The serviceability buffer is designed to help ensure borrowers can afford to repay their loans in a range of scenarios – if interest rates go up or if their income or expenses change.

In 2021, the Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer it expected lenders to use when assessing the serviceability of home loan applications from 2.5 to 3 per cent. That means that borrowers taking out a loan must be able to meet repayments at an interest rate that is at least 3 per cent higher than the loan product rate.

There has been growing pressure on APRA to relax the serviceability buffers for refinancers to help address the mortgage prison situation. APRA has said its serviceability guidelines remain appropriate but it would adjust their policies if there was a risk to financial stability.

Why are more people landing in mortgage prison?

Unfortunately, a perfect storm of factors has landed many borrowers in mortgage prison.

Firstly, we’ve seen an unprecedented amount of rate hikes since May 2022. This in turn has affected serviceability buffers (lenders need to be sure prospective borrowers can withstand higher repayments should interest rates continue going up).

And with property prices falling in many markets in the last 12 months, many homeowners have seen their equity plunge.

Then there’s the fixed rate cliff situation. Australians who secured loans during the period of all-time low fixed rates are now confronting substantially higher interest rates as their fixed rate terms expire.

Long story short, many borrowers are now finding themselves in mortgage prison, grappling with costly mortgage repayments but unable to refinance due to the 3 per cent serviceability buffer.

How we can help

As your mortgage broker, we can:

  • Investigate whether there may be other lenders out there who might take you on.
  • Negotiate with your current lender. We may be able to request a lower interest rate, investigate other options like reducing your loan fees and applying for financial hardship.
  • Suggest ways to improve your serviceability. For example, you may be able to reduce your living costs or pay down more of your principal and increase your equity.
  • Find out how your credit report is looking. This is an important piece of the puzzle with a loan application.
  • Explain whether debt consolidation could help get you into a better financial position.

If you’re feeling trapped by your home loan and want to explore your options, get in touch today. We’re here to help.