PROPERTY LOAN ALERT
for property investors
and home buyers
Why missing a credit
card payment makes it hard to qualify for a property loan
Pay a credit card or home loan more than 14 days
late after the due date, and the missed payment
will be recorded as a black mark against your name on
your personal credit file.
Black marks for missed payments will damage a personal
credit rating for 2 years.
This newsletter explains why black marks make it hard to
build up a good credit history, which makes it hard to
qualify for a property loan.
What personal credit data
is recorded in credit files in Australia?
Almost every adult in Australia has a personal credit
file with personal credit data in it.
Somewhere deep inside the computer databases of Veda
are individual credit files for 16.4 million
individuals. This means that 99% of Australians over the
age of 18 years have credit files.
Veda is Australia’s leading credit reporting agency with
an 85% share of the Australian credit bureau market. This is
the credit data that Veda records on personal
credit files –
- Identity details - current name and aliases;
date of birth; gender; driver’s licence number.
- Address history – residential and business;
employment history and business names.
Note: Personal information remains on the
credit file permanently.
Consumer and Commercial Credit Information posted
- Payment history information – missed payments
made more than 14 days late (after the due date)
and short payments are recorded as ‘not made’ – they
show a poor credit history; remain on the file
for 2 years (starting December 2012).
- Payment defaults on amounts of $150 or more
overdue for at least 60 days are recorded as ‘unpaid’;
remain on the file for 5 years, and for 7 years for
serious payment defaults.
- Clearouts – where the individual is ‘missing’
or out of contact; remain on the file for 7 years.
- Credit enquiries, credit applications made
and credit refusals; remain on the file for 5 years.
- Credit account status – when the account was
opened; the type of account, the credit provider;
account limit but not the account balance or the
actual payments; when the account was closed; remain on
the file for 5 years after the account was closed.
Note: Payment history information and credit
account status are new from March 2014.
Public Record Information posted by Veda
- Court summonses and court writs; remain on
the file for 4 years.
- Court judgments; remain on the file for 5
- Bankruptcy, Debt Agreements and Personal
Insolvency Agreements; remain on the file for 7 years
even if discharged earlier. Bankruptcies remain on the
public record permanently.
- Company directorships (company officers) and
business proprietorships (but not shareholdings);
remain on the file for 10 years after they cease.
Note: The time periods commence on the date when
the data is recorded on the credit file.
The new rules for
accessing and sharing credit data in Australia.
As from March 2014, the Privacy Law protection for credit
data was relaxed. Now, for the first time, lenders (known as
credit providers) can place on a credit file, have
access to and can share credit data with other
lenders about their customer’s loan status and repayment
This means that personal loan and credit account data can
be shared between credit providers such as Banks,
Financiers, other Lenders, Credit Card issuers, Retail
Stores, Car Financiers, Car Hirers, Mortgage Insurers and
Trade Insurers. The credit data that can be shared is:
- Credit cards
- Store cards
- Home loans
- Furniture and TV rentals and loans
- Car loans
- Personal loans
- Business loans
- Investment loans
A credit provider who is a member of a credit reporting
agency may record a black mark on a credit file for
late payments, payment defaults and clearouts. They will
With the new comprehensive credit reporting rules,
lenders have a more complete picture of every
current loan and credit account the borrower has because
they can access shared credit data.
No longer can a borrower hide loans and poor repayment
histories with other lenders when applying for a new loan or
new credit account!
Who can and cannot record
defaults on credit files?
Utilities such as Telecom Providers, Electricity
Suppliers and Gas Suppliers can record black marks on
credit files for payment defaults and clearouts (but not
late payments) as members of a credit reporting agency. But
they cannot record or share their own payment history data
on personal credit files.
Real estate agents, debt collectors, employers, general
insurers, professional services firms; Local Councils, Water
Authorities, Land Tax Offices, Stamp Duties Offices, Motor
Vehicle and Traffic Authorities, and the Australian Taxation
Office cannot record black marks on credit files for
late payment of:
- Council and Water rates, Strata Levies
- Rent and tenancy defaults
- Electricity and Gas bills
- Traffic and Parking fines
- Income tax, BAS payments
- Stamp Duty
- Land Tax
- Business debts
- Consumer debts
- Insurance premiums
They have no access to personal credit files
because they don’t give loans or open credit accounts. They
are not members of a credit reporting agency.
But if they issue a court summons or a writ or enter a
court judgment, this is public information, and the credit
reporting agency may record it as a black mark on the
person’s credit file.
Credit scores indicate
Lenders use an individual’s credit score to assess
their lending risk. Now, with comprehensive credit
reporting, credit scores will become more accurate and
Veda has a proprietary credit scoring calculation it
calls a VedaScore. According to Veda, ‘It is a score out of
1200, calculated using more than 90 variables about an
individual’s identity and financial history.’
To produce a credit score, Veda applies a secret
mathematical algorithm to the credit data contained in the
individual’s credit file to measure the likelihood of missed
payments, payment defaults, court judgments and bankruptcy
within the next 12 months compared with the general
According to an Australian Financial Review article:
994/1200 is an excellent credit score; 707/1200 is a good
credit score; 619/1200 is an average credit score; and
352/1200 is a below average credit score. These scores are
Banks and finance companies have in-house credit scoring
systems, to assess the information contained in the loan
application and in the credit report issued by the credit
the USA, it is a national pastime to maintain a high credit
score (called a FICO score) because its use is not
restricted to loan applications. A FICO score is based on
more personal data than in Australia, and is used for
practically everything from loan applications to rental
applications to job applications.
A cricket score can be final,
a credit score changes
Tips improve to your credit
score to - AAA personal credit rating
All of these factors influence a credit score/personal
- pay on time – pay within 14 days, and
definitely within 60 days of the due date for bills of
$150 (or more); payment authorities will help; update
payment authorities when a new credit card issues with a
- do not ‘shop around’ for loans – keep to as
few as 3 credit enquiries per year;
- pay out payment defaults - and have the
credit file marked ‘paid’;
- stay in the same job (job stability) and stay
at the same home address for at least 2 years;
- hold off making loan applications for 2 years
after a credit blemish is recorded;
- avoid being a company director – because if
the company goes into administration, receivership or
liquidation, a black mark is recorded and an explanation
- transfer accounts when moving – particularly
electricity, gas and telephone;
- update personal information on the credit
file - particularly addresses to avoid a clearout
- reduce limits or cancel credit cards and store
cards, when applying for a loan because they are
treated as fully drawn when calculating monthly
Checking your credit file
and repairing credit
Everyone should check their credit file annually to find
out who has been making credit enquiries and to correct
errors. File access requests are not recorded on the file as
To order your personal credit report from Veda, click on
service is free for one basic credit report per year. The
credit report will be sent out within 10 business days. If
you are in a hurry or want your credit score, pay the fee.
If you want to receive a credit alert each time your credit
file is accessed, pay the fee.
If the credit file contains an error or wrong
information, report it to the credit reporting agency. It
has 30 days to either correct it or substantiate it.
Most ‘credit repair’ requests will not remove the default
notation from the file. But ‘status’ can be corrected to add
‘paid’ or ‘disputed’ or ‘current’ or ‘finalised’ or
‘defended’ to the entry.
This is the Veda policy –
Generally speaking, information on your credit file is
not removed before the expiry date unless there is an error.
If the information is incorrect, it’ll likely be corrected
rather than removed.
If not satisfied, apply to the Australian Information
Commissioner to correct the information.
If the credit problem is difficulty in meeting loan
repayments, Veda cannot solve it. A hardship application to
the Credit Ombudsman or Financial Ombudsman is the solution.
How a good income and
payment history gives a good credit score
Borrowers need to prove a good, steady income to
service a loan. Consider these –
- Full time employees – same job for 2 years or more –
have excellent serviceability
- Casual employees and the self-employed - need 2
years tax returns, tax assessments, BAS statements to
- Property investors – about 80% of their rental
income is used to prove serviceability
Borrowers need a good income history plus a good
payment history to have a good credit score.
Borrowers with on time repayments for 2 years and no
serious defaults have a good credit score. They can expect
to pay lower interest rates, and will find it easier to
qualify for a loan.
But borrowers with black marks for missed payments within
the last 2 years have a below average credit score. They can
expect to pay higher interest rates, or to need a higher
deposit when buying a property, or to have their loan
Overseas experience says that credit history has a 35%
weighing in a credit score. That is why when looking to
borrow money tomorrow, it is advisable to create a credit
history today. And that is also why missing a credit card
payment makes it hard to qualify for a loan.
What else must a borrower
have for a property loan?
Apart from proving serviceability, borrowers need to
provide good security - the property value must be
enough to support the loan amount.
Property lenders will lend a percentage of the
property value (loan-to-value ratio or LVR), depending
on the location and the use. Consider this as
a general guide –
- City or large country town owner-occupied houses -
up to 95% of value
- City commercial properties – shops, offices,
industrial, warehouses – mostly 65% to 70%; up to 80% of
value for loans up to $1.5 million
- Small country town owner-occupied houses - less than
10,000 people – up to 80% of value
- Country properties used for farming or grazing – up
to 25 acres: 70% to 80% of value; above 25 up to 100
acres: 70% of value; and above 100 acres: about 50% of
- Residential investment properties in cities and
towns – 90% of value for small loans, 80% of value for
large loans, and for a total loan exposure of over $1
Note: What percentage of value will be available will
depend on the borrower’s credit history. For example, a
borrower with a good credit history might be approved to
borrow close to 95% of value of a city house. But a borrower
with a poor credit history might be approved for 80% of
value for the same property.
Disclaimer: Because lenders assess borrowers differently,
and because each borrower’s circumstances are different, the
comments made in this newsletter are not to be relied upon
in specific cases.
The Investor’s Guide to Property Ventures has been
produced by Cordato Partners Lawyers, as part of its
Property Law practice. Our team will meet all your
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