With Christmas just around the corner, the temptation to spend big on the credit card becomes apparent. It is easy to get trapped in the mindset of enjoying the festive season and dealing with the bills later, however, it is important to remember that overspending may result in an increased amount of bills that can become hard to juggle once the New Year begins.
The truth is, something as simple as paying your credit card late can affect your credit rating for many years. Bad debt can remain on your Credit Rating for up to seven years, which can lead to difficulties obtaining finance for certain things such as a home loan or car loan.
Until recently, your credit report may have included things such as:
- like when you applied for a credit card/loan or
- any defaults or judgements you might have had.
However, the new Comprehensive Credit Reporting (CCR) changes now include a lot more information, including:
- the date you opened or closed your credit account
- credit limits on all your credit cards or loans
- up to two years repayment history – showing when and how much you have paid on loans or credit cards
How does this affect me?
All credit providers will now have your complete credit profile available to them and, unlike Tinder, you can’t create a fake profile! The upside is, only licensed credit providers will have access to your complete file. For example, Telstra provides phone and internet services, not loans, so they won’t be able to see your detailed history.
If you’re a regular on-time payer, the new system is going to be perfect for you, especially if you haven’t been in the workforce or had a credit card/loan for long. What’s known as a ‘thin’ credit file can now be filled out with on-time or early payment records.
However, if you tend toward the lazy side of bill paying, here are our tips to get things moving in the right direction:
- Consider setting up direct debits for your bigger bills, and especially for your minimum credit card
- While there are advantages to changing card providers, be careful not to ‘hop-scotch’ from one provider to the
- Keep your bank/credit providers updated with your details, change of address or
It was once enough to just pay your bills, but with the new CCR you’re going to have to cut the lazy out of your financial life if you want a bank to “swipe right” to your loan application.
With all that being said, we understand that sometimes, life happens, and unforeseen incidents can make it difficult to meet your monthly repayments. How do you avoid a bad credit rating?
1. Contact your bank
First, contact your bank or credit card provider. Be honest. Tell them what’s happened. Often the bank/credit provider will be happy to re-negotiate your repayments. And don’t forget to contact your service providers and arrange a payment plan you can afford.
2. Balance Transfer
Another option is to move your credit card debt to a new card offering a long interest-free period for new customers. This MUST be done before your credit card payments are overdue. While chopping and changing card providers isn’t always ideal, an effective financial plan, which might include a new card provider offering 24 months interest-free, is a sound move. If you go with this option, stick to your new provider for the period and try not to make any new purchases on the new card – no matter how tempting it is.
3. Debt Consolidation
You can also consider consolidating your debt through a personal loan. This one is tricky. You’ll need to be certain this works for you, otherwise, it’s just another loan on your history that could end up making things look worse.
Do I need to worry about this if I have a home loan already?
Keeping up to date with your payments isn’t just a matter of if you’ll get a loan or not, it’s also a matter of what interest rate you’ll be offered if you decide to refinance. Interest rates are at a record low, meaning now is the best time to refinance and secure a better home loan rate.
When it comes to refinancing, if you have a good report that shows repayments are always met on time, you will be in a far better position to negotiate a better rate. The difference between interests rates could save you thousands. For example:
If you’re classed as a slow-paying customer, you might be paying 4% plus - that’s $1900/month.
An average payer might be offered a 3.25% loan - that’s $1740 per month.
And an early bill payer might be looking at a 2.7% loan, that’s $1620 per month.
Paying your credit card and other loans on time will not only help you get a housing loan, but it may also save almost $300 per month in repayments or more than $3,000 per year.
Let’s be honest, everyone occasionally pays some bills a bit late or robs credit card A to pay credit card B now and again. Little hiccups will not destroy your rating. Having said that, it’s wise to have a good financial plan in place to avoid late repayments and potentially damaging your credit report.
For further information on the new comprehensive credit reporting, get in touch with one of our mortgage brokers in Cairns at Preston Finance and Insurance.