Powered by MOMENTUM MEDIA
SUBSCRIBE TO OUR NEWSLETTER SIGN UP

Must Read

February 11 2019 Prime Minister backs broker channel
Prime Minister Scott Morrison has voiced his support for the broker channel and outlined their impor...
February 6 2019 Big banks comment on broker remuneration changes
EXCLUSIVE: The major banks have begun releasing their reactions to the banking royal commission rec...
February 5 2019 Treasury: Trail to be banned next year
Updated: Government will look to ban trail commissions in the broking industry for new loans from 1 ...
January 29 2019 Royal commission report to be released on Monday
The final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financ...
Rankings and reports
Graham Doessel

Could carry-over credit card debt be the undoing of many a home loan?

Graham Doessel
Graham Doessel Comments 0 — 4 minute read

Australia’s new credit laws will place late-paying clients of licenced credit accounts such as credit cards and loans on the ‘naughty list’ if they are more than five days late with repayments.

So who’s going to be most at risk of getting a late payment notation?

In our experience, those with carry-over credit card debt, as well as those people with multiple credit cards could be most at risk.

Certainly, when assessing clients who present with bad credit, we find a significant number of clients with defaults who have carry over credit card debt and/or are juggling multiple credit cards and other debts in arrears.

These people are more likely to default because they have undertaken too much credit, often leaving no wriggle room for when life throws them a curve ball. Death, divorce, unemployment, sickness and relocation can all create that upheaval which leads to chaos with finances. If someone in the throes of a chaotic event is unable to pay an account and it falls more than 60 days in arrears, they can have a default placed on their credit file.

Advertisement
Advertisement

In the case of repayment history, it’s going to take much less of a curve ball to make a dent in the credit file. Australia’s credit reporting system proposes to tackle the over-commitment issue with the inclusion of repayment history information to an individual’s credit file. If a client gets more than five days behind in their credit card or loan repayments, their repayment history may show up on their credit file.

Those people robbing Peter to pay Paul – running from one repayment to the next, but never quite getting far enough in the red to cop a default on their credit file – are just the type of credit users big brother is hoping to catch out with repayment history information. It will mean people with bad habits when it comes to credit are going to be stopped in their tracks, and, eventually, won’t be able to take out major credit such as a home loan.

Too many late payments will be used to assess increased risk of default even when a default is not present on the credit file.

So how many people have carry-over credit card debt?

A recent survey conducted by Roy Morgan for ASIC shows that around 2 million Australians do not pay off their personal credit card debt in full each month, rising from 24 per cent of personal credit card holders in 2009 to 27 per cent of personal credit card holders in 2013.

Another recent survey showed the volume of Australians worried about their finances. Mortgage Choice revealed in its Money Survey last month that 53.4 per cent of people surveyed were “very worried” or “concerned” about their financial situation. The survey also found that 55.5 per cent of the respondents had credit card debt, with 45.7 per cent of them owing at least $4,000.

The fall-out goes to the uneducated

No one is immune to incurring late payments on their credit file, and the fear is that clients who don’t fall into the category of the overcommitted could also be tarred with the same brush. Those who are more than five days late because their bill goes missing, or who stay a little too long on holiday, or just get busy and forget to pay are going to be tarnished as a late payer.

And it seems that most people don’t know they run the risk of this. Recent statistics from Veda Advantage revealed that the majority of Australians do not know they can be penalised for making a credit card or loan repayment late. Statistics show that seven out of 10 Australians don’t know about Australia’s new credit laws.

How many late payments will lead to the declining of finance approval is up to individual lenders to decide. What we fear is that even one or two late payments over 24 months could change the interest rate offered.

How will the new laws change the credit landscape?

Not every licensed credit provider will be taking comprehensive credit reporting on board, and some will take a while to apply the changes. But what we do know is the shift to the new system is being encouraged by those within credit reporting, with a probable take-up by most licenced credit providers within the next 24 months.

Brokers may find there’s a teething period in the future, as lenders change the way they assess credit worthiness based on the new available information. What was once accepted by the top-tier lenders could now be declined.

My advice to brokers? Having knowledge of a client’s repayment history as well as any other adverse listings prior to making an application can help match the right product to your client. It may be a good idea to encourage clients to get a copy of their CRA, and even showing them how easy and quick it can be to obtain their credit report could be beneficial to everyone in the qualifying process.

Clients can obtain a free copy of all their credit reports from www.freecreditrating.com.au.

 

Could carry-over credit card debt be the undoing of many a home loan?
TheAdviser logo
Graham Doessel

Graham Doessel

Graham Doessel is the chief executive and non-legal director of MyCRA Lawyers.

MyCRA Lawyers advocates for individuals in matters of credit file dispute.

An early pioneer in credit repair, over recent years Graham has become a frequent consumer spokesperson for issues impacting credit reporting, and is the Secretary and Spokesperson of the Credit Repair Industry Association of Australasia.

Graham also founded and is the non-legal director of Armstrong Doessel Stevenson Lawyers.

FROM THE WEB

Latest Blogs

3 habits of a customer-obsessed business
Delivering a great client experience is key to repeat business for any broking business. Emma Cattermole of Wealthfolio shares her top tips on how to ...
Why Commissioner Hayne has added insult to injury for Australian home buyers and investors
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is long overdue. But will it work in favour of Au...
Escalating a brokerage’s growth trajectory in a time of turbulence
Nick Young (Trail Homes) and Justin Mastores (Rees Group) outline how to maintain business growth, make astute decisions and mitigate risk in a time o...
latest issue
The Adviser magazine latest issue
COVER STORY
The top 25 brokerages 2019

This year’s ranking once again demonstrated that broking groups are leading the fray when it comes to leading brokerages, but that independent offices are rapidly challenging the big groups, as Annie Kane outlines.

FEATURED ARTICLE
The broker's guide to CCR

Having a complete picture of a borrower’s financial position promises many benefits for lenders, brokers and borrowers alike. With comprehensive credit reporting on Australia’s doorstep, The Adviser speaks to industry participants about how brokers can prepare for and make the most of the new regime.

Broking in the regions

Broking in regional, remote and rural areas comes with many advantages, but it can also be challenging at times. Tas Bindi chats with brokers about what it’s like to run a business in regional towns.

SUBSCRIBE TO THE ADVISER MAGAZINE TODAY!
The number one magazine for mortgage brokers
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target market reports to an audience of professional mortgage and finance brokers
order now