Information included in your credit file:

Your credit file includes information about your credit history for the last five years including:

• Your personal details (name, address, employer etc)
• Credit applications you have made including credit cards, personal loans, consumer credit, home loans etc. It is not recorded whether your application was successful or not.
• Any defaults (overdue accounts) and whether you have subsequently paid these or not.
• Any judgments or summons against you for unpaid debts
• Whether you have been bankrupt, and if so what your current status is.
• Whether you are a director of any companies. If you are any credit applications to which you have signed as guarantor will also be listed.
• Any proprietorships under which you have registered a trading name or applied for an ABN.

How your credit history is used during a loan application

When you apply for a loan, you will be asked to sign a privacy consent form. This allows the lender to request a copy of your credit file. The lender will then assess the risk associated with lending funds to you based on your credit history. Each lender will assess your history against their own criteria and may reach a different opinion on your credit-worthiness.

Tips for maintaining your credit-worthiness

• Obtain a copy of your credit file from www.mycreditfile.com.au. You can either request a free copy by mail which takes about 10 days or an express copy by email which takes 24 hours and costs in the region of $27. This will enable you to see what the lenders will see and to determine, with your finance broker’s assistance, if there is anything that may be cause for concern. If there are errors on your file you will be able to take action to have them corrected.
• Pay your bills on time and communicate early with your creditor if you anticipate a problem in meeting your commitment to request an extension or grace period. A bill that is more than 60 days overdue may be listed and will remain on your file for five years.
• Don’t make too many applications for finance, particularly credit cards and other unsecured consumer finance. Multiple applications may require detailed explanations to a lender and make your application that much more difficult.
• Be cautious what you sign when obtaining quotes for finance in stores, vehicle showrooms etc, particularly if you’re just shopping around. If you sign a privacy consent form it is likely that the store will request your file and this request will then be recorded on the file.

Tips for managing your credit file if you have past credit issues:

Previous credit issues will not necessarily mean you will be unable to secure finance, but there are some steps worth being aware of:

• Let your broker know early on that there may be issues on your credit file, preferably providing your broker with a copy. An explanation submitted along with an application will always come across better than an explanation after the lender has found out about it from the credit check and had to ask the question.
• With knowledge of your credit history, your broker will also be able to direct you to lenders who are more likely to accept your application which will save you time in the application process.
• If there are errors on your file, take early steps to have them corrected.

For the purposes of raising finance, self employed folk can be separated into two groups; those who are able to meet the full income verification requirements and those who aren’t. If you are able to fully verify your income you should have access to almost all the products PAYG earners do at the same competitive rates.

Full income verification requirements usually include:

• A two year profitable trading history supported by profit and loss statements and Tax office returns
• A savings history

If you have recently become self employed, or started a new business meeting these requirements is often not possible. Lenders do tend to view these circumstances as higher risk, but there are still a number of options open to you. These are usually low-doc or no-doc loans or the loans available through the non-conforming loan market. While some of these loans can be more expensive they can be useful short term options until you are able to prove a repayment history and negotiate a lower rate or meet the full verification requirements and re-finance.

Our documentation table provides more detail on the information / documents you would need to provide along with your application for both circumstances.

Lenders Mortgage Insurance protects the lender against loss if a customer stops making repayments and the property is sold by the lender for less than the outstanding amount on the loan. Lenders mortgage insurance will be required for all loans where the client contributes less than a 20% deposit. (It may apply for deposits of less than 40% for low doc or no doc loans or for particular property types.)

Although this seems like borrowers are protecting the lenders at the cost to borrowers, there are benefits for the borrower:

• A low deposit or no deposit borrower such as a first homebuyer is able to purchase a home sooner thereby avoiding further increases in property prices; or
• Higher borrowing power even if a homebuyer has the required amount of deposit as they can borrow more funds to for example allow access to cash for unexpected expenses.
• The cost of Lenders mortgage insurance is based on a percentage of the loan and the size of the deposit you have available. It is charged as a one off premium at the beginning of the loan and most lenders will allow the premium to be financed over the life of the loan.

Deposit bonds are a useful alternative to a cash deposit. They are effectively a guarantee to the seller and can be issued for all or part of a deposit at a cost of about 1.2% of the deposit. A deposit bond for $ 50 000 would cost $ 600.

The advantages of deposit bonds include:

• Your savings remain intact and continue to earn interest
• They may be used at auctions
• Purchasing off the plan where settlement traditionally takes longer need no impact on your savings or cashflow
• Deposit bonds are available for anywhere up to four years
• They can usually be arranged within 24 hours with minimal paperwork

While professional packs may not suit all clients, they offer a number of great features that are worth considering for qualifying clients (those borrowing more than $ 150 000):

• Reduced or no application or valuation fees for a number of property transactions
• Access to discounted rates (the discounts increase with the loan size)
• Flexibility to split loans for personal and investment purposes
• All in one banking: a transactional account, credit card and finance for one annual fee