Can a late credit card repayment impact my chances of buying a home?
Short answer: yes.
Since the introduction of Comprehensive Credit Reporting (CCR), lenders have access to more information about your credit and repayment history than ever before. This means that one seemingly small blemish on your credit report (i.e. a late credit card repayment perhaps) can impact your chances of getting a loan approved.
Whilst it has always been important to pay your bills on time, there are now longer term implications you need to be aware of – especially if you ever have plans to buy a house or refinance your existing home loan.
What is a credit file/report anyway?
Lenders use your credit report as part of their decision to approve (or decline) your loan application.
Your credit file is a statement that summaries your personal credit history and provides a snapshot of your current credit accounts. It provides details of accounts that are currently open, details of accounts that have been recently closed, a monthly record of whether repayments have been made on time, and an overall credit rating/score for you as an individual.
If a repayment is late, the repayment is given a rating. The higher this rating, the more overdue your repayment was. If you have lots of high ratings for missed/late repayments, the harder it’s going to be for you to secure finance. Even one late repayment can be problematic for some lenders and some types of loan.
What happens if I have late repayments showing on my credit file?
As part of assessing your finance application, the lender will want to get a clear understanding of why the payment was missed, whether you had funds to pay the account at the time, and how likely it is that you’ll miss a future payment. If the lender is satisfied with your explanation, they’ll progress to the next step of assessing the merit of your application.
The lender is trying to confirm you’re a worthy candidate to lend money to. They want to be confident that the chances of you missing a mortgage repayment are small (which can be hard to prove if you have a history of being late with credit card/ personal loan repayments).
Can I get a loan if I’ve missed a repayment on a credit card/ personal loan?
If you’ve missed a repayment on an existing liability and hoping to buy a house, it will impact your ability to secure finance. Your chances of getting a loan approved will depend on the circumstances of your missed repayment and the overall strength of your application. Having a late repayment is not necessarily a dealbreaker, but it is something that is likely to slow down the process and something the lender will want to know more about. (It some cases, it will halt the process altogether).
Questions the lender will consider as part of assessing your application include: How long was the payment overdue? What type of liability is it? Do you have a valid reason for why the repayment was late? Is the account now back to normal? Was this just a once off? Or do you have a history of missing repayments? How much are you looking to borrow? Is your capacity to repay the new loan strong?
Strategies that may help
As we approach the end of the year – when expenses can creep up due to the holiday period – please continue to make repayments for any liabilities on time.
Easy ways to manage this include:
- Set up a direct debit or automatic payment of credit card bills;
- Switch to email statements, so they don’t go missing in the mail (if you’re away/ move house)
- Set repayment date reminders in your calendar; and
- Avoid using credit if you don’t have the cash to pay off the bill at the end of the month.
These tips may seem pretty simple, but following them will help you stay on the right track towards home ownership.
Blemishes on your credit file can follow you around for years and something you want to avoid at all cost.
