The Four Lettered Dirty Word.
People don’t like hearing it, to some it is offensive, inappropriate, and it isn’t a word to be used at the dinner table. Whoever thought a four lettered word could cause such strife and funk. The eluded four lettered word is DEBT.
Are you young? Have you made a few misguided decisions in terms of your finances? Purchased a flashy overpriced item and taken on a large loan? Crunched that credit card and haven’t paid it off?
Just admit it, you’re in DEBT and it’s hovering over you, limiting your capacity to move forward financially.
With help from our friends at Resolve Finance, we are going to de-funk this dirty word from D to T.
Debt causes Difficulty
Dreaming of building that first home? If you’re in debt, it will make it harder for you to make this dream a reality.
• All lenders check your credit file before approving a loan, and if it has a number of enquiries on it, this may affect your approval.
• Every time you apply for or enquire about a home loan or things like a credit card, car loan, phone contracts and interest free purchases, etc. it’s recorded on your credit file – whether you’re successful or not.
• Debt can also impact how much you can borrow, the bigger the debt the greater the impact on reducing your mortgage borrowing power.
• This highlights the importance of engaging professional home loan specialists, like mortgage broker Resolve Finance. They know the lenders that will most likely approve your loan application, so you only need to make the application once.
• And it’s really important to know that banks pay attention to the limit on your credit card, not the balance owing.
A Credit File Explained
Think of this like a big chunk of your financial resume. The lenders will look at it to see your experience, capacity and skill to manage money.
Most people in Australia have a credit file. If you’ve ever applied for finance (whether for a home, car loan or even mobile phone) then you have a credit file. It’s a record of some personal information and your credit information like:
• Your date of birth, employer’s details and drivers licence number.
• Confirmation a credit provider has asked the credit bureau for a credit report in relation to a credit application you’ve made.
• A record that a credit provider has lent money to you.
• Bankruptcy records, court judgements or writs.
• Payment defaults – including things as seemingly trivial as a late phone bill.
All lenders review your credit file as part of the process of considering your application.
A great way to keep on track of your credit history is to obtain your credit report. It’s easy to do and can be ordered online once a year for free at http://www.mycreditfile.com.au/ or you can visit getcreditscore.com.au
Bypass the Pain
It will seem like a cop out answer but the easiest way to avoid the pain of debt is to not get into it. Manage your money well, learn to save and sacrifice, and don’t take out loans you can’t realistically afford. Do you really want to be eating canned spaghetti every night?
• It is important to be conscious of the impact of a poor credit report. Make sure you apply for consumer credit (credit cards/personal loans/store accounts/interest free purchases) sparingly as each time you enquire for credit; it will be recorded on your credit file.
• Pay your bills on time, no matter how big or small is important.
· Consider paying some of your smaller bills or more regular bills via direct debit. Setting up this arrangement will ensure that these bills are automatically paid.
· Be aware and actively manage your credit file as in many ways your credit file is a representation to many lenders and utility companies of your creditworthiness.
Getting out of Trouble
Whoops, you’re in debt! Problem = Solution, no worries!
• Before you apply for your loan, try to minimise your other debts. If realistic within your budget, pay off any other loans (including interest free purchases) and you could consider cancelling a couple of credit cards.
There are a few simple tips to ensure you keep on track of your credit history and avoid any overdue payments:
· If you notice an entry on your credit file that’s incorrect in any way, ensure that you address it immediately with the company concerned.
· If you have a credit default listed against you for late or non-payment, there are some lenders that may look at your situation, depending on a wide range of factors. An adverse credit report does however make any credit application far more challenging with a greatly increased incidence of decline.
So it’s really important to get to know your credit file and understand the importance of it when applying for a home loan.
Where to from here?
Resolve Finance also have a program called My Home Plan that can help you with debt reduction. Through the plan, you’ll be provided with your very own savings program, tailored to their individual needs, run and monitored by their personal Finance Coach.
There could be other options to take too like getting Resolve to help you with debt consolidation. The idea being here that you combine all your debts together so you’re making one overall repayment, giving you better control of your finances and potentially saving on overall interest charges and fees. It’s important to talk to a finance professional like Resolve before considering if debt consolidation is right for you – which they can help you arrange.
If you would like assistance building a new home, get in touch with Homebuyers Centre. Through their partnership with Resolve Finance they can chat through any debt concerns you may have.
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