Why ‘putting it on the plastic’ could harm your chances of obtaining a home loan

In recent years, it seemed as if Australians had finally cracked their credit addiction – with debt from ‘putting it on the plastic’ down in two consecutive years. However, a new upturn in purchasing on credit has been identified and it’s now thought that just under $2,000 is owed on the average card – a two-year high.

While it’s not clear how much of the debt comes from simply paying off interest, rather than tackling the underlying sum owed, what is apparent is that credit card users are going to have to be extra vigilant to ensure they don’t damage their chances of obtaining a home loan in the future.

This is because of the new mandatory comprehensive credit reporting regime, which comes into effect in Australia from 1st July 2018.

What are the changes?

The legislation means that credit agencies will be given greater access to customer data, allowing them to more adequately assess whether or not a borrower is in a healthy position to repay a loan.

Under the new scheme, customers’ monthly payment histories on loans and credit cards are held by the credit agencies, who will raise a red flag when a payment has been missed by more than 14 days. They will also be able to access data on the current accounts each customer holds, as well as any new accounts being opened or old ones closed.

Previously, information provided to lenders was limited to bankruptcies and missed payments of over 60 days.

What does this mean for borrowers?

Borrowers are going to have to ensure they can meet the required minimum repayments when they use their credit card, as a single missed payment could have severe repercussions in the future if they do need to apply for a home loan.

However, it’s thought that the new legislation will be ‘fairer’ on those who do record ‘positive behaviour’ when it comes to their credit cards. Rather than over-emphasising any negative events, such as a missed payment, credit agencies will be able to establish a more rounded picture of customers’ repayment habits, theoretically putting you in a better light with lenders, who should be able to lend more responsibly and identify any issues that do occur at an earlier stage.

So, it’s a win-win for everyone – as long as you don’t go overboard with your credit card spending.