Understanding credit

July 18, 2017
Daniel Ellul

When applicants are looking at obtaining credit, some fall into the trap of submitting multiple applications over a short period of time. However, by doing so, they risk ruining their credit in the short and long term.

Credit products:

There are a variety of these including: a home loan, car loan, personal loan, credit card, store credit offer, phone contract or utility services. When a customer applies for one of these products, their credit file is checked by the service provider, before credit is approved.

Credit file:

A detailed report of an individual's credit history, which consists of the following: full name, date of birth, gender, residential addresses and employment history. Other details: are enquiries made for credit over previous 5 years, along with a history of any overdue accounts, defaults, serious credit infringements, bankruptcy, court judgements and clearouts.

Credit enquiry:

When an applicant applies for a credit product, a check undertaken by a service provider, reviewing the applicant's credit file to verify: identity, they don't have any defaults, aren't bankrupt, have any pending court action, what credit products they currently have and their overall credit score.

A credit enquiry, can impact a service provider's acceptance or rejection of an application. Once the credit enquiry is conducted, it will be recorded on the applicant's file for 5 years. If there is a serious credit infringement, it will remain on the credit file for 7 years, but if it has been paid, it will revert back to a default and remain on the file for 5 years.

The risk of multiple credit enquiries:

Lenders perceive multiple credit enquiries in a short period, as an indication of an applicant who has been declined or can't manage their finances properly. Credit files, never state if an applicant has been approved or declined, but will list every enquiry made over a 5 year period.

If a credit provider, see several enquiries over a short space of time, they will question this and in most cases decline the application.

What you need to do:

In order to have a good credit file, the following is recommended:

  1. Avoid submitting multiple credit enquiries over a short period.
  2.  Pay all your bills on time and if you can't, speak to your credit provider urgently.
  3. When looking at signing up for utilities or obtaining a mobile phone contract, do your homework by researching for the most suitable product/service, before applying. There a number of websites, which compare utilities and phone plans.
  4. Avoid store credit, to buy goods, for example if you want a TV and can't afford to purchase immediately, ask yourself these questions:
      • Should I really be buying it?
      • Can I purchase a cheaper alternative?
  5. Use the services of a mortgage broker, as they can organise home, car and personal loans and most importantly compare many products finding the one, which best suits your needs (without the need to lodge multiple enquiries).

If you would like to find out more about obtaining a home, car or personal loan, please call (03) 9398 1390 or visit: www.mortgagechoice.com.au/glyn.camilleri

Posted in: Home loans

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