Credit Rating Disaster - Help OzBargain Brains Trust!

LBrubblez on 27/08/2022 - 06:40
Last edited 27/08/2022 - 13:46 by 1 other user

After scouring the blogs and blogs of ads telling me how to fix my credit rating problem, it's time for me to turn to the trusty OzBargain Brains Trust!

Here's my situation;

Ever since I was a uni student 15 years ago I've been conscious of maintaining some sort of credit history, unfortunately, as some students do, loans and credit stack up to support your study.

I've used Equifax for as long as I can remember as a student and through my grad years, always paid my loan/card payments off on time and was lucky to have a rating that hovered around 750-800 despite earning a pittance and being loaned up to the nose.

The credit rating became less important to me over the last 5 or so years when I've had a steady job.

Last year I was lucky to sell an apartment I lived in during my early career and used most of the money I made to pay off all my partner and I's debts.

Fast forward to now.

I applied for a $20k loan for my wedding, thinking I am debt free, have 1 credit card that I only use to put deposits on rental cars etc., and earning far more than I ever have, and more than enough to take out a loan. This shouldn't be a problem right?

Declined.

I check my credit rating on Equifax. 422.

I apparently had one missed payment (16 days) the month I paid off my credit card from last year.

Now I have no other debts, this is being majorly weighted. I checked Clearscore and I am 744, so it seems to be an Equifax thing. But I want to buy a house next year & mortgage brokers are saying Equifax is what the banks use most.

What do I do OzBargain? Should everything go back to good after the 2 years is elapsed? Are there other things I can do? I really don't want to risk applying and getting denied for more credit.

TLDR: Bad credit rating (422) after closing all my credit cards & loans. 1 missed payment on remaining credit card. Want to apply for home loan at end of next year. Tips?

Financial Credit Report

Comments

  • kerfuffle on 27/08/2022 - 06:44
    +14

    Reduce your wedding budget by $20K.

    • Brubblez on 27/08/2022 - 06:46
      +2

      The problem isn't the 20k for the wedding. Ive now saved for that instead. It's applying for a home loan by the end of next year

      • Drakesy on 27/08/2022 - 16:31
        +4

        If you need a loan for a wedding
        then your wedding is out of your budget.

      • AustriaBargain on 27/08/2022 - 18:34
        -1

        Have you spoken to the bride's parents about this? They might be old fashioned and want to pay for the wedding themselves. That 20k could go towards a deposit for your home, which is going to be half your wife's home at the end of the day, and if she outlives you like she statistically will then it will be 100% her home one day. So maybe her parents will see paying for the wedding as an investment in their daughter.

  • Platinumtelecom on 27/08/2022 - 07:13
    +3

    How is your partner’s credit score. When applying for a loan, I am guessing it will be under both names?

    The funny thing with credit scores is that once you apply for a home loan, regardless if you proceed with it or not, your score will go up by about 100 points. That’s what happened to me recently.

    I don’t know how much you earn, but I don’t have a great score, but noticed the more you earn the less they care about score

    • Neoika on 27/08/2022 - 07:23

      It is about serviceability. A person earning more to borrow $1m+ does not mean that it is safer to approve him a loan than a person earning less to borrow $0.5m-.

    • Brubblez on 27/08/2022 - 07:32

      Partner's credit score is really good luckily. It's just me that has the bad one!
      That's good to know. Thanks!

  • rickb on 27/08/2022 - 07:50
    +3

    By what degree will a bank factor your current credit rating is hard to tell, but the security they have over your mortgage is much greater than over rental wedding cars.

    My inclination is that a bank will place more weight in your ability to meet the ongoing mortgage repayments. If this can be demonstrated at the time of application then I doubt you and your partner will have any issues.

  • onetwothreefour on 27/08/2022 - 08:52
    +5

    It's probably a good thing. Don't go 20k into debt for a party.

    • Brubblez on 27/08/2022 - 09:26
      +3

      The problem isnt the wedding. Would rather take out a loan on 20k at 6% interest pa and pay it off in one year, than take 20k out of a managed portfolio earning more than 6%…

  • Muzeeb on 27/08/2022 - 09:22
    +3

    Sell tickets to your wedding at $150pp

  • Jimothy Wongingtons on 27/08/2022 - 09:26
    +3

    Going into debt for a wedding… far out

  • Brubblez on 27/08/2022 - 09:28
    +9

    Trust Ozbargain to focus on the wedding haha 😂 everybody is probably out here with 20k loans still paying off their eneloop investments when dicksmith went bust

    • Muzeeb on 27/08/2022 - 09:29
      +2

      Yeah, you shouldn't have mentioned the wedding.

      Never mention the wedding.

      • Brubblez on 27/08/2022 - 09:40

        I've learnt a valuable lesson :P

    • coffeeinmyveins on 27/08/2022 - 14:43
      +2

      Never mention anything that doesn't end with "So I'm going to buy a 15 year old Camry". It'll upset the OZB's who turn every light off and spend five hours to save $5.

  • Slippery Fish on 27/08/2022 - 09:33

    How to improve your credit rating:

    Spend and pay for things on time.

  • freefall101 on 27/08/2022 - 09:45
    +1

    Do what everyone does with a crap credit rating/low-doc/whatever reason loan if you get declined by normal banks - take a loan with a shit lender then switch to a good lender after 12-24 months.

    Be wary of the loan fees to do get out of those lenders, they're very aware of why people get loans with them.

    I'm applying for a loan at the moment though, I've heard absolutely nothing about my credit rating. My partner doesn't even have one, moved to Australia a few years ago, doesn't have a credit card (just uses debit visa) and she's usually the secondary on bills which means it doesn't show up on her credit score. It's not an issue with borrowing though, they care about loan serviceability.

  • bobbified on 27/08/2022 - 10:17

    Declined.

    Someone or something is trying to tell you something about weddings! 😁

    I check my credit rating on equifax. 422.
    I apparently had one missed payment (16 days) the month I paid off my credit card from last year.

    Dropping down to 422 for a single late payment seems like a lot! I've got a default against my name and my score on equifax is still 780-something.
    Were all your other monthly payments "on time" (other than this late one)? It shows in your report.

  • djkelly69 on 27/08/2022 - 10:36
    +3

    Banks generally do their own credit assessments, they don't rely on those services.

    If you have no debt and a large deposit, you will be fine.

  • Tony-Abbott on 27/08/2022 - 10:51
    +2

    Credit scores once again, mean basically nothing in Australia.
    Banks use their own criteria.

  • El-Rhi on 27/08/2022 - 12:12
    +3

    I wouldn’t worry about it too much… each month you continue to pay your credit card on time your score will slowly improve. By the time you apply for a home loan next year the late payment should be towards the end of the 24 month period, so lenders won’t focus on it too much. If the lender asks you about it, just be honest and say it was an oversight, but since then you’ve always paid on time

    • miwahni on 27/08/2022 - 22:50

      This is what I was coming here to say. Your score will gradually improve month on month provided you don't apply for any further credit; in twelve months' time it will be much higher.

      Where I work, a score under 500 via Equifax is an automatic loan decline; always makes me laugh when see these replies from people saying that credit scores are meaningless. They very much aren't. But it's so much easier nowadays to repair a credit score provided there are no serious adverse events eg defaults. Within a few months of good payment history your score will improve, and keep improving. Good luck with the house hunting next year.

      • El-Rhi on 28/08/2022 - 09:26

        always makes me laugh when see these replies from people saying that credit scores are meaningless

        Absolutely - those people crack me up too

  • star-ggg on 27/08/2022 - 13:15
    +2

    I miss a CC payment like once every few years just from absent mindedness. I live chat the bank immediately after making a payment and they always reverse the penalty charges (not the interest obviously). Has never been an issue in my loan applications. The credit rating is only one aspect of many.

    For young posters reading this, don't go applying for loans/CCs to "maintain a credit rating". Use those when you think it's beneficial not because you feel like you need to.
    In Australia, nobody cares about your credit history unless it's bad (ie missed payments) and you're never going to miss a payment if you never take out a loan or CC.

  • thedeep on 27/08/2022 - 14:50
    +1

    Does it only show in the repayment history section of the report? If so, then it will disappear after the 24 months. Some lenders do use the Equifax score to help them assess the loan. It won't necessarily mean you won't get a loan, instead it may mean they will scrutinise the application more carefully compared to another borrower with a high score. If the score is high enough, the scrutiny on the application may be limited to "pre-application" checks such as serviceability.

  • tonka on 27/08/2022 - 16:58
    +1

    Contact a mortgage broker now and see if they think it will be a problem with their process. I'm expect they have many ways to get around Skynet.
    I can't currently get past the 'instant approval' because I declined a credit card offer when some knob in India required my current years completed tax return in mid June for a credit limit of half a months pay and 0.1% of my equity.

  • GourmetFoodie on 31/08/2022 - 20:06

    Why on earth are you getting a loan for your wedding? That insane mate. Don’t do it. If you can’t afford a wedding don’t have one! It’s one day that is certainly not worth $20k.

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