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Do I need to have a credit history to get a home loan?

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In Australia, your credit rating is based upon a few factors: your debts, your proven ability to make repayments, your credit enquiries (applications you have made for loans or credit cards), and any negative events you may have recorded against your names, such as defaults or bankruptcy.

Here we work on a positive credit reporting system, so you do not necessarily need to have built a credit history through products like loans or credit cards in order to get a home loan. In fact, the more credit products you have applied for in the past, the more your ability to be approved for a loan can be impacted.

If you are concerned about being approved for a home loan because you do not believe you have a credit history, here is what you can do to build one.

What is a positive credit reporting system?

Australia’s Comprehensive Credit Reporting system is a positive credit reporting mechanism that means credit bureaus are supplied with information about consumers and their repayment conduct. The bureaus pass on this information – both positive and negative – so that lenders are well informed to approve or decline credit.

Positive information that is reported includes:

  • on-time bill repayments for the past year;
  • repeat good behaviour, rather than a focus on a one-off missed payment; and
  • detailed information, including the type of credit account, opened, when it was opened, the current limit on the credit account, and which lender the account is with, which can be helpful to people without much credit history.

How can I build a strong credit report without using a credit card?

You don’t need a credit card or a personal loan to be able to grow your credit history and build up a credit score. Paying utility bills on time is an excellent way to show a lender that you are a reliable borrower, so remember to pay gas and electricity in full and on time to help build your credit profile.

Your post-paid phone plan is another way to prove your reliability. If you use a prepaid phone plan it would be prudent to switch across to a plan that issues a bill at the end of each period. Paying these bills on time will help demonstrate how responsible you are, but remember that failing to pay the bill can negatively affect your score, too.

If neither of these options is suitable, or you want to give your credit history a real boost, there are low-interest, low-fee cards that have low balances available. If you think it would be manageable to pay off the balance each month you could consider applying for one of these types of cards for the purposes of improving your rating.

What kind of conduct will reduce my capacity to be approved for a loan?

For consumers who do not, or have not had, any credit products, bills should be paid before the due date to maintain a strong credit rating. Individuals who have previously had a poor record of paying their bills on time can improve their rating by starting to pay within the billing period and ensuring they do not miss any due dates going forward.

Changes to financial hardship reporting

From 1 July 2022, financial hardship information will start to form part of the credit reporting system. This information is intended to help lenders gain a more detailed picture of a borrower’s repayment obligations and whether they have been meeting those obligations.

Ultimately, to be eligible for a home loan you can build your credit history through positive events such as paying bills on time. There is no need to apply for a smaller credit product such as a credit card or personal loan for the sole purpose of building credit unless you are absolutely certain it is the most advantageous financial decision for your situation.

For more information talk to our experienced Mortgage Brokers today on (07) 4052 0700.

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By Lauren Eakins

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