Credit ‘blemishes’ contribute to first home buyer slump

Credit ‘blemishes’ contribute to first home buyer slump

16 May 2013

First home buyers eager to buy property are plagued by credit blemishes, according to a national credit repairer, who argues bad credit has as much of an impact on first home buyer numbers as lack of market confidence.

CEO of MyCRA Credit Rating Repair, Graham Doessel says latest figures from the Australian Bureau of Statistics (ABS) showing first home buyer numbers remain low despite other parts of the market moving up are a testament to the challenges faced in obtaining credit under tight lending conditions.

“First home buyers can have difficulty obtaining credit in this market as they are probably the least educated on the ways their credit rating can be diminished and most active with credit habits which can reduce their credit rating,” Mr Doessel says.

Official Housing Finance figures released by the ABS on Monday show in original terms, the number of first home buyer commitments as a percentage of total owner occupied housing finance commitments fell to 14.2% in March 2013 from 14.4% in February 2013 – despite falling interest rates.[i]

Mr Doessel says there are some credit habits which can reduce any credit rating.

“Excess credit enquiries, multiple personal loans and negative credit listings can be detrimental and first home buyers may not realise the impact these decisions will have on their home loan application in the current market until it’s too late,” he says.

He says some are also finding default listings on their credit file they had no knowledge of.

“Paying your bills on time should, but doesn’t always guarantee a clear credit file. As credit repairers, we see a multitude of instances where the Credit Provider has made a mistake and put a default or other listing on the consumer’s credit file when it shouldn’t be there,” he explains.

The credit habits of Australia’s young people, who may make up the majority of what should be ‘first home buyers’ was recently revealed in a report from credit reporting agency Veda Advantage.

The report showed the number of credit defaults amongst Gen Y had grown 5.3% over the past three years to 60% of the share of all credit defaults.[ii]

“We are seeing more of Gen Y lumbered with 5 years of credit defaults - unable to even get a mobile phone plan let alone a home loan,” Mr Doessel says.

He says there are 5 things first home buyers should be aware of before they apply for a home loan:

1. Only apply for credit you have full intention of pursuing. Currently there is no way of seeing if the loan you applied for was approved or not, only that the application was made. Some lenders are refusing home loan applications due to too many credit enquiries, such as two enquiries within thirty days or six within the year.

2. Reduce personal loans or ‘high interest’ loans before applying. Even if you are meeting all of your repayments well, too many high interest loans, credit cards or personal loans may reduce your credit rating.

3. Reduce credit limits. If you have a credit limit of say $20,000 on your credit card, the debt amount on that card will be calculated on $20,000 – even if the actual amount you have owing on that card is only $5,000. So if you are going to take out cards or lines of credit, seek to set a credit limit nearer to what you need.

4. Order a copy of your credit report. Anyone has the right to request a copy of their credit file, to see what is being said about them. If you are not in a hurry, it can be requested at no charge from Australia’s credit reporting agencies, and mailed to you within 10 working days.

5. Clear up mistakes. There is the potential for creditors to make mistakes when entering listings on credit files. These mistakes range from out and out unfair listings right through to incorrect notices provided, wrong addresses and simple human or computer error. It’s a good idea to sort out any disputes well before you apply for a home loan.

“Currently, listings are not removed unless you can provide adequate reason and evidence as to why the listing has been placed unlawfully on your credit file, so it is important to be well educated on credit law when dealing with issues around your credit file, or to employ someone who is,” Mr Doessel says.

ENDS.

© Scoop Media