How Late Payments Can Affect Your Ability To Get A Home Loan

How Late Payments Can Affect Your Ability To Get A Home Loan

When money is tight most people look at their regular expenses to see where they can cut back. There are a lot of different ways to save money in the short term, including unsubscribing from a streaming service, spending some Saturday nights in or saying ‘no’ to a new pair of shoes, but leaving your credit card or personal loan repayments until next pay day is definitely not your best budgeting option.

Payment due dates, particularly those attached to personal loans, are factored into the overall amount of your loan and the term in which you have agreed to pay it off. Missing a due date is not just an inconvenience to your lender, it could also mean paying more interest in the long run, not having your loan paid off in the time you agreed to, added fees and potentially even the inability to be approved for another loan in the future.

What should you do if you can’t pay your credit card or personal loan on time?

If you are struggling to make a repayment by the due date, it is very important that you speak to your bank or the financial institution your credit card or personal loan is with. They may be able to extend your due date or provide you with assistance through their hardship program. Hardship programs can offer anything from relaxing the due date, asking you to pay a nominal amount of the outstanding balance or pausing payments for an agreed period of time.

Do not try to ignore the outstanding debt as this can cause further problems.

When does a late payment officially become an issue?

Being a day or two late with a credit card or loan payment will not affect your credit score. However, once payment becomes 30 days overdue the creditor is allowed to report your late payment and this report will appear on your credit file. Each late payment stays on your credit file for up to seven years and will list how many days the amount was outstanding for.

The severity of the late payment can increase if you are late in paying multiple accounts at one time or if you are continuously late in paying the same account.

Who has access to my credit report?

Your credit report is protected by privacy law, but it can be accessed by credit providers and mortgage and trade insurers under certain circumstances.

It is important to remember that credit providers are not just banks and financial institutions. Credit providers may also include:

  • Building societies and credit unions
  • Energy, water and telecommunications companies
  • Any stores that offer credit cards or accounts (such as David Jones); and
  • Small lenders (also known as ‘Pay Day’ lenders).

These types of credit providers are authorised to view your credit report when you are seeking any type of credit from them and, just like with a credit card or loan, they can approve or decline your application based on your credit history.

What can happen if a lender sees late payment reports on my credit report?

Every time you apply for a loan or credit card, the financial institution will be able to view your credit report to make a determination about your eligibility to service the repayments. If you have a history of making late payments, particularly if you miss them by many weeks or months, this can affect your ability to be approved for a loan.

Can I fix a bad credit report?

Yes. Although your late payments will be recorded against your credit report for up to two years, if you take action and pay any outstanding amounts as well as paying any future amounts on or before the due date, you will not have any further late payments recorded on your file and the previous late payments will eventually disappear off your record.

Your credit report is just one of the factors that a lender will review before approving your loan, so having a healthy credit file is crucial for being able to access credit.

For more information, speak to a mortgage broker at Preston Finance & Insurance today.