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I defaulted on my credit card repayments, can I still buy my first home?

Receiving a default notice can leave you feeling financially exposed and low, but what a lot of people don’t realise is there are things you can do to get back on track and work towards purchasing a property.

Don’t worry, you aren’t alone. In 2019, the Australian Securities and Investments Commission announced 1.9 million Australians have problematic credit card debt. That’s almost 15 per cent of Australian adults.

 

Why did I receive a default notice?

You will receive a default notice for anything from unpaid bills to outstanding debts. The most common types of defaults include loan and mortgage repayments, utility and telco bills and credit card payments. If these bills exceed their due date, are left unpaid for a prolonged period and you have been given enough opportunity to repay them then a creditor will list a default against your name.

How will a default impact my borrowing capacity?

Unfortunately, these notices will make their way onto your credit history which lenders review when determining how much they will allow you to borrow for a mortgage. The good news is positive credit was introduced in 1 July 2018, so as well as showing serious defaults and bankruptcy, your report will list repayments made on time. It is worth noting you can still apply for a mortgage with bad credit visible in your history, however we do recommend speaking to First Things First or your financial adviser before engaging with lenders.

How long will bad credit appear on my report?

There are two main types of default notices based on the severity of the infringement. For instance, a minor default of credit card payments will remain visible on your credit history for five years. However, a major default will last seven years or longer.

In general, most types of defaults will last in your credit history for five years. However, court writs last for four years while clearouts last for seven years. A clearout happens if you owe a creditor, but you’ve changed your contact address without providing the creditor with your new address. It is considered to be a serious consumer credit infringement in Australia.

In case you make payments for past defaults, they will still be listed on your credit history. However, when taken care of they will be listed as paid, and your credit score will also reflect that.

Can defaults be erased from my credit history?

Defaults will be erased from your credit history only after five or seven years as the case may be. However, if you find that a default erroneously listed in your credit report, you can contact your credit reporting agency to get it erased. If your case is found to be genuine, the default will be erased from your credit report.

How can I improve my credit score?

To improve a credit score, you must demonstrate you are financially responsible. We advise our clients not to miss any payment due dates and not to access credit unnecessarily. You should also keep track of all credit commitments you’ve made in the past and try refinancing or consolidating your debt. We like to obtain a copy of our client’s credit reports to review it for any errors. Removing errors from your credit report will help your credit score improve. In case you are struggling to meet repayments, we advise you to talk to your credit provider. In many cases, credit providers will be willing to consider your situation before striking a default against your name.

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How do I obtain my credit report?

You can obtain your credit report for free once a year. Simply place a request with your credit reporting agency, and you’ll receive your report within ten days. However, if you need more than one copy of your report during a year, you will be required to pay.

Can I still apply for a home loan with an existing default?

There are some banks that will allow you to apply for a mortgage with a visible default on your credit report. If you’re looking to apply for new credit or a mortgage, request a callback from a First Things First adviser. Our expert team of home buying specialists will assist you with everything – from obtaining your credit report to reviewing it for errors, preparing loan documents and presenting the right application to lenders.

How can I avoid defaults on my credit report in the future?

Looking ahead there are several things you can do to avoid defaults in your credit report. The clear and obvious one is to make sure to pay all your bills on time. Scheduling your bills around your pay cycle will also ensure you meet all your payment due dates.
Another tip is to keep a log of all your credit commitments and to make sure you keep lenders updated if a change of address or phone number occurs.

Request a callback from First Things First

If you would like to know how much you can borrow to buy your next home, then get in touch with First Things First. We compare rates from multiple lenders and ensure you know which borrower will give you the greatest rate vs total loan amount. This is a free service and we don’t pass any mortgage broker fees to you the borrower. We can also have a broader discussion about your home buying strategy and help structure a plan of action to get you that dream home.

Disclaimer: This blog is general in nature and has been prepared without taking into account your objectives, financial situation or individual needs. You should, therefore, consider the appropriateness of the information through independent means before acting on it.

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