Just because you might have missed paying a phone or electricity bill, you might be put in the bad credit basket.
Even if you later pay those bills or sort out a default on a loan repayment, you can still have a black mark against your name as far as some lenders are concerned.
While you may see yourself in the clear, others don’t. Understandably it can get confusing. So let’s clear the air with ‘bad credit’ and help figure out where you really stand.
What is bad credit?
Bad credit, or adverse credit as it’s sometimes referred to, is when you’ve had a history of not keeping up with payments on your credit agreements and you’re then unable to get approval for new credit. When you have bad credit, many lenders steer away from you. They consider you as a high risk and are concerned about your ability to make the regular repayments on your loan.
What lands you in the basket?
There are a few things that can label you as ‘bad credit’. Some you may know. Some may surprise you. At the very least, you’ll know the reason why you might have been declined for a home loan.
Some of the more common reasons are:
- Past unpaid bills and loans, or missed payments
- Exceeding your credit card limit
- Credit file with ‘too many' credit checks
- Previously bankrupt
- A divorce leaving you in debt
- Registered credit defaults
- Part 9 or 10 Debt Agreement
- Temporary sickness without any payment during that period off work.
Pepper understands that sometimes circumstances beyond your control can lead to a missed payment, default or even bankruptcy. That’s why we talk with you one-on-one to learn more and work towards a solution.
How do you know if you have bad credit?
Most times you wouldn’t. It’s not until you apply for a loan that you usually find out. Before you’ve had time to ask why or at least explain yourself, you’re suddenly labelled non-conforming by the major lenders. For them, it’s because you don’t fit their lending criteria. For you, it’s because of your credit defaults. And it doesn’t matter if they’re large or small. In the banks’ eyes, you’re still a high-risk candidate.
How does bad credit determine a declined home loan application?
Just by having bad credit, you can have your home loan application declined. Most of the time, it will be down to the specific criteria set by the lender. This would go hand in hand with the lender’s agreement with a third party insurer and is where Lenders Mortgage Insurance (LMI) comes into play. So not only do you have to pass the lender’s criteria, you also have to meet the requirements from the insurers, which are often quite strict. Even of you did manage to get approved, you are likely to get charged a higher interest rate than if you had a good credit score.
Why wait until your credit history is cleared?
So you get a home loan application declined because you have had a few credit defaults. However, it doesn’t mean you have to wait to be in the clear before you can apply again. That can take years. Worse still, you might find yourself getting declined again and again. You do in fact have options.
You can always speak to a specialist lender or non-bank lender who may be able to help. More often than not, they will have some specialist features outside a basic or standard variable home loan. Along with taking a more holistic approach, they will usually look at your individual circumstances before making a decision.
If you’d like to learn more about bad credit, feel free to speak with one of our professional Lending Specialists on 13 73 77 Monday to Friday 8:00am to 6:00pm AEST.
This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Pepper Group Limited ABN 55 094 317 665.