By Tamia Gallego
When it comes to your credit history, Australia has been maintaining a negative credit reporting system whereby along with credit inquiries, defaults are recorded on the credit file.
Most of the developed world has been operating on a positive credit reporting system where information about you as a borrower is much, much more transparent. Under a new comprehensive system to be launched on 12 March 2014, lenders will be able to guage your credit worthiness based on extensive data that would include:
– Account open date and close dates
– Credit card or personal loan approved limits
– 24 months repayment history on credit accounts such as mortgages and credit cards.
Having numerous credit inquiries, within a short period of time, reflected on your credit file as well as a high total credit limit available raises red flags to the bank. For instance, when you have a $30,000 credit limit the bank would consider your monthly repayments based on the $30,000 balance regardless of whether you access all of the $30,000 credit available to you. This in turn reduces your borrowing capacity in situations when you really need to borrow for business purposes or to purchase a home or investment property. If you qualify for the loan, the bank might ask you to cancel some if not all of your existing credit cards, or reduce the limits of those cards to reduce your overall exposure. To circumvent this from occuring, you might want to consider asking your bank today to reduce your credit card limit if you don’t need to access all of the available credit.
Low balance transfers are useful once or twice to assist with paying down credit card debts. But there are many who switch from one balance transfer to another repeatedly for whatever reasons. Lenders can usually identify this kind of behaviour right of the bat and will mark down your credit card score.
It’s now more important than ever to ensure you always pay your credit card and home/personal loan bills on time, or else you could be affecting your ability to get a loan or another credit card in the future.
Related: 5 Ways To Raise Your Credit Score
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