Interest rate cuts no help for millions of Aussies living with credit file defaults
Home loan rates were reduced on 1st November, but for millions of Australians who are living with defaults on their credit file, they will be hit with $22,867.15 (1) more in home loan repayments over the first three years of the loan.
The Reserve Bank of Australia has cut interest rates for the first time in more than 2½ years, lowering its key cash rate by 25 basis points to 4.5 per cent.
Many big banks have already passed on the reduction, potentially saving the average householder about $49 per month. We talk about massive savings for the average Australian with these cuts, we talk about encouraging people to switch lenders to increase competitive rates, but this is not a reality for people with credit rating defaults.
For those approximately 3 million or more* Australians who are living with defaults on their credit file, the interest rates cuts will be negligible. Most banks won’t lend them money, forcing them into non-conforming loans and paying top dollar because their credit file shows they are a bad risk – and it may not be true. *(3.47 million – Source Veda Advantage Nov 2008).
For the five year term of the default they will be paying a staggering $702.21 (1) more per month if they enter a non-conforming loan at higher than standard interest rates.
(1) Based on average loan of $400,000 over 30 years on non-conforming loan interest rate of 9.5% vs standard variable rate of 7%.
And the alarming part of this is that many of the defaults sitting on Australian credit files today simply should not be there.
There are more than 14 million credit files in Australia (14.7 million files are held by credit reporting agency, Veda Advantage alone), and approximately 3.47 million negative listings, but the number of possible errors which exist is not certain.
The possible volume of errors on Australian credit files was exposed by a small scale study conducted in 2004 by the Australian Consumer Association (now Choice Magazine). It revealed about 30% of Australian credit files were likely to contain errors.
“In our view, there are serious, systematic flaws which are leaving an increasing number of Australian consumers vulnerable to defamation, mis-matching and harassment,” the ACA report said.
Transferring those figures from the Choice study to the number of credit files in Australia today, could mean potentially 4 million errors currently exist on credit files in Australia.
Recently Channel 7’s Today Tonight interviewed Veda Advantage’s Head of External Relations, Chris Gration on the possible number of errors on credit reports. He admitted errors within their system alone amounted to 1%.
“We give out about 250,000 credit reports to consumers every year. But only in 1 per cent of cases is there a material error on the file, so a default or an enquiry that’s incorrect,” Mr Gration told Today Tonight.
Even if as little as 1 per cent of those 14 million credit files contained errors, that would still currently leave 140,000 credit files in Australia containing errors that just shouldn’t be there.
Under current credit reporting legislation, it is up to the consumer to check for errors. Credit file holders are able to obtain a copy of their credit report from one or more of Australia’s credit reporting agencies for free every 12 months.
But consumers are often not aware across the board of their responsibility to check the accuracy of their own credit file so many errors go undetected until such time as people apply for credit such as a home loan.
But by then the matter is urgent, and they are generally forced to take on non-conforming loans at sky-high interest rates to secure the home. Or give up on their dreams of home ownership altogether, at least until the default listing runs its term. (Unless of course they or their broker are familiar with how credit repairers work).
Many people don’t realise that any person who finds inconsistencies on their credit file has the right to have the discrepancy rectified. As many people find out – that is easier said than done.
When disputing any adverse listing, it is up to the credit file holder to provide reason as to why the creditor has not complied with legislation. Unfortunately many people find this process difficult – negotiating with creditors is not always easy for the individual to undertake.
That’s where credit rating repairers come in to close that gap.
Credit repairers check the process of listing defaults for legislative and or compliance errors, any such errors could deem the credit file default listing unlawful, at which time the creditor is advised by the credit repairer to remove the default. This usually results in a clean credit record allowing people to borrow with the lender of their choice.
So if people are forced to pay thousands more in interest due to credit rating defaults, which leaves them struggling to get ahead on their mortgage OR if a new loan applicant finds they are surprised with a bad credit report which could see them entering into a high interest loan, it may be worth contacting MyCRA Credit Repairs tollfree on 1300 667 218 to find out whether they may be a suitable candidate for credit repair.