Keeping your credit score healthy

Your credit file is one of your most important financial assets. Safeguarding this file is an important part of the finance application process.

Your credit file contains:

• credit applications, overdue credit accounts, payment defaults, clearouts (as a missing debtor), commercial credit information and public record information. You will have a credit score calculated from your credit file.

Did you know that a score of less than 500 will severely affect your ability to gain finance from many lenders?

Do you even know what your score is or how easily it can be affected?

What is your credit score?

Credit scoring is a mathematical assessment of the data included in your credit report. The credit score is calculated by the credit reporting agency using a number of complex formulas. The score shows the likelihood of your defaulting on your credit payments within the next 24 months. Scores range from 200 to 1,200.

The higher the credit score the lower the risk that you will default. A score of around 550 will indicate that you are an average risk.

Credit reporting

The credit report is the basis for your credit score. In Australia there are two main credit reporting agencies:

  1. Veda, and
  2. Dunn & Bradstreet

You can access a copy of your personal credit report through www.mycreditfile.com.au normally at no charge. Your credit report is very important as it provides the information used to calculate your credit score.

You will have a credit report if you have applied for any form of credit.

This can include:

  1. phone contracts,
  2. credit cards,
  3. residential or personal loans, or
  4. hire purchase.

So what affects my credit score?

The exact formula used is a closely guarded secret that not even the lenders know. What we do know is that there are some behaviours you can control that will affect your score:

  1. late payments,
  2. overuse of credit, and
  3. limiting the number of credit applications.

I didn’t realise that was recorded on my credit report!

We have had clients lodge a loan application with us, only to be rejected due to a poor credit score.

When we investigated the case we found there had been multiple credit enquiries listed in a short period of time. What the clients didn’t realise was that every time they were offered (and accepted) a new credit card (at their local grocery store and service station) these services were individually lodged as a credit enquiry.

Our clients had also sought pre-approval from various lenders while they were searching for a new home. These pre-approvals were also listed as a credit enquiry. When the time finally arrived to acquire their home loan, it appeared they had submitted many applications for a range of credit over a very short period. This history resulted in a low credit score and subsequent rejection by the lender.

Surely the lender can understand what really happened?

Unfortunately many major lenders are now treating credit scores as a black and white decision. If your score is too low then the loan application will be rejected – no questions or discussion!

What should I be doing?

You need to be conscious of your credit report. Make sure you meet all your credit obligations. If you are considering refinancing in the next couple of years, be aware of all agreements, preapprovals and enquiries you make (where you sign a privacy agreement) as these will generally result in an entry on your credit report. These entries stay on your file for 5 years.

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Girl Power! Single, female FHBs on the rise

There’s an interesting property market trend underway… Let’s all welcome the single, female first home buyer!

Statistics show Gen Y females are the fastest growing group of mortgagors, taking out almost one quarter of mortgages in Australia in 2015. In fact, almost twice as many single women are buying homes as single men!

Why are women going it alone?

There has been a significant shift in the lender market – 30 years ago single women often suffered discrimination when applying for home loans. Fast forward to 2017 and it is financial merit, not gender, that underpins qualification for a home loan.

In the same period there has also been sizable growth in participation rates of women in the workforce . However it seems that social change has been a key driver for young women to seek their own financial independence – many no longer see a need to wait for the right guy to come along!

Women now think about property as part of their life plan. In a recent survey 87% of 18-34 year old women listed owning a home and paying it off as a lifetime goal (compared to 79% of men).

The survey also revealed Gen Y women can be more financially literate than Gen Y men showing:

• 81% of females understand variable interest rates (60% for males)

• 49% rank home ownership over having children (14%) and getting married (5%)

• 73% list paying off their home loan sooner as the most important factor when taking out a loan

What do you need to know?

Regardless of gender there are important points to consider when buying property on a single income. FIRST on your list should be talking to us – your finance specialist.

The initial challenge is determining how you will save the deposit and manage repayments on your single income – there is still an average pay gap of 16% between women and men in equivalent full time roles !

If possible, aim to save at least 20% deposit to avoid lender’s mortgage insurance (LMI) plus extra for stamp duty, legal fees, moving costs etc.

Other important considerations:

• Do you know your credit score? Either get a copy of your credit report OR we can get it for you.

• Know your borrowing capacity BEFORE you commence. Maybe a smaller, cheaper property is a viable way to start?

• Check your eligibility for a first home owner grant (FHOG) in your state.

• The ‘bank of Mum and Dad’ is another growing trend! If family members are in a position to help we can assist you to explore options such as a family guarantee or gifted deposit.

• We can arrange pre-approval of your loan. This assists you to act quickly AND stick to your budget.

• Perhaps consider becoming a ‘rentvestor’? Rental income on an investment property may help pay down your loan while you rent where you want to live or live at home and save.

• We can explore loan features suitable for your individual circumstances as a single buyer and your long term financial goals.

• What about pooling your resources? Individual applicants have been slowly shrinking since 2012 as young buyers team up with siblings, parents or friends to get into the market.

• Don’t forget income protection insurance – so VERY important when buying on a single income. Don’t leave your financial future to chance!

First home buyers are VERY much in the news – there is growing pressure for our governments to do more to help them into property. Measures to abolish stamp duty and increase FHOGs are already underway in some states.

As your finance specialist it is our job to keep up to date with the latest finance market changes so give us a call TODAY!

Your precious ‘stuff’… Do your kids want it?

If you are in retirement mode – and especially if you are thinking of downsizing – you may be looking at passing on precious possessions to your children or grandchildren. There may be just one small problem….

Do they really want them? You COULD be in for a surprise!

Many of our younger generation are simply not interested in inheriting a lot of the items we hold dear. Tastes have changed – minimalist is ‘in’ and clutter is ‘out’.

Gens Y and Z identify more with their current social profile than they do with family heirlooms from the past. They are also mobile generations, often choosing to work and travel abroad. Storing boxes of ‘stuff’ is just NOT on their radar.

Where does that leave our precious ‘stuff’?

It can be difficult to accept our kids don’t want our belongings but what matters to US is that they don’t end up going to waste.

So how do you downsize without your past ending up as junk? Here are our tips:

• Ask your kids/grandkids to choose one or two items they would really like and give them to them NOW.

• Donate furniture etc to charities or community programs so they go to someone who needs them.

• Scan photos and albums to create a digital photo book you can store and share online with your family NOW.

• Sell items you no longer want, need or have room for. Ebay, Gumtree and local buy, swap, sell sites make it so easy.

A word of warning! Research their value first – you just might be selling something of great value.

Consult your financial adviser to explore any tax implications such as whether capital gains tax may be payable. It’s also a good time to make sure your will is up to date.