The Australian dream of home ownership is still strong.  As our housing market begins to shift gears in 2022, perhaps there will finally be an ‘in’ for those who have been waiting in the sidelines.  The ABC recently reported “house prices in Australia are dropping at their fastest pace since the global financial crisis — and market conditions are "likely to worsen" as interest rates continue to rise, according to property analytics firm CoreLogic.”  

Before you even begin entertaining the idea of purchasing a property however, you will need to have a good credit history. If you haven't borrowed money before, don’t worry it’s not a prerequisite, there are other ways for a financial institution to assess your financial reliability.  

It takes time to build a reputation in the eyes of creditors. You gain ‘points’ for never being chased by collection agencies, for having a glowing rental history, for always paying your bills on time. You have to be able to demonstrate a good track record of paying off your debts when you have them. If you don’t pay your debts a default may be listed on your credit file after a specified time.

So how does one boost their credit rating?

  • Start - Everything from having phone, electricity, gas or internet bills in your name or having your name on a lease will all contribute to your credit profile. If you let these sorts of payments fall by the wayside you are on your way to leaving a dirty smudge on your credit history.
  • Stay Put - If you can demonstrate you have job stability this will also work in your favour. Changing jobs every 6 months or so suggests you might not be able to hold a job down. For a financial institution, knowing you have a regular pay cheque coming in will boost your chances of taking out a loan considerably.
  • Stash your Savings - Did you know you can actually build credit history through your savings history as well as your spending? Put away a certain percentage of your earnings into an online savings account and maintain a reasonable balance. Saving up for a home deposit is an excellent way to demonstrate your ability to stay on top of debt.
  • Credit Crunch - Be aware that a credit card with a high limit can actually reduce your borrowing power.  Financial institutions include your credit limit as potential debt (even if you always keep your card paid on time) when assessing your finances.  

Things to consider before applying for a home loan. 

  • Keep on top of your bills, even the little ones -  Defaults are usually listed on a credit file after three months of missed payments on a debt commitment. Anything from an unpaid phone, electricity or credit card bill could impact your credit history.  
  • Though you may not have thought about it, it's highly likely you already have a credit file even if you've never taken out a loan or have a credit card. A history can be built through phone bills, internet and utility bills, residential leases, etc.  What's more, you can request a free copy of your own credit file from Equifax. If you haven't investigated your credit history before and you’re unsure if there is some lingering debt from your past it may be worth considering.
  • The best and easiest way to improve your credit history is to save. If you set up a savings account and make regular deposits for a few months, you are showing lenders that you can keep a financial commitment. The deposits don't even have to be big ones, just putting away 100 dollars a week would show lenders you’re able to commit to a budget and save.

With a little dedication and focus you can work towards attainable savings goals and build up a positive credit history.  When the time comes to apply for a loan it's pretty much impossible to provide too much information to lenders.  Tax returns, pay slips, credit card repayments and bill payments are all useful.   Now is the time to begin the process of filing important financial documents, getting on top of your tax and flexing your saving muscles.  Before you know it, you’ll have a deposit saved and will be taking the next steps toward buying your own property. 

Alison Gallagher is a freelance writer, resourcefulness expert and entrepreneur.  She has been featured in various publications including Stellar Magazine, Australian Health and Fitness Magazine, and Cleo Magazine. Alison is particularly passionate about sharing practical tips on how to live simply, sustainably and seasonally.  

15 September 2022