In this week’s ‘Make Credit Work For You’ post, we look at the lies we tell ourselves which see us taking on too much credit, or see us run into trouble with our credit file. Those lies can end up leaving us unable to pay, and blacklisted from credit for years to come. What should you be honest with yourself about when it comes to borrowing money? This post is inspired by David Koch’s recent article ‘Money lies you need to stop telling yourself’ featured on news.com.au.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.
According to Kochie, telling yourself financial lies is pointless. He says it’s time to toughen up and stop the lies, as these can cost us big time in the future.
So, what things can we lie to ourselves about, that could cost us our good credit rating down the track?
* As long as my job pays well, it’s OK if I hate it.
Kochie says staying in a job that you hate, even if it pays well, means you don’t have your heart in it, there will be no commitment, no passion and your boss will eventually latch on.
“Inevitably, you’ll be the first one to go in any redundancies and the one overlooked for any promotions,” he says.
So before you apply for credit, especially major credit like a home loan – it’s important to understand the long term commitment, and consider whether the career you’re in is going to fulfil you for at least several years to come. In the early years of a loan, your repayments will be at their highest and it will be essential to put your head down and pay off as much as possible.
Kochie says success comes easiest to those who love their job. So if you don’t – it might make sense to spend some time getting settled in a job you do love, before you apply for major credit.
However, if you are unhappy in your job and are currently paying off a mortgage or other significant loan – it’s important you are really smart about how you change careers. Consider your loan first and foremost before you make any drastic career changes. You don’t want to be caught out unemployed and unable to pay your loan.
* If I turn a blind eye, somehow my finances will work themselves out
Burying your head in the sand is never a solution to your financial issues. They only snowball. At this point in time in Australia, paying bills even one day late may directly impact your credit file, through licensed Creditors recording your repayment history information. Paying them later than 60 days will see you defaulted.
The government has made changes to credit laws in order to assist consumers in financial difficulty, but you need to put your hand up and own your financial problems, and you need to have a plan.
To begin with, stop lying to yourself about how much money you actually have. To get any help, or to help yourself, you first need to know exactly how much you have left at the end of the week – or even how much you are in the red.
If you know you can’t make your credit repayments, work out how much you can pay from what you have, and give this information to your Creditors to negotiate a financial hardship plan which may see your repayments reduced for a period of time. For more information on financial hardship variations, visit ASIC’s MoneySmart website.
If you are not in dire straits yet, don’t wait till you’re there to do something about it. Kochie recommends starting with a plan that involves either cutting back expenses or earning extra income to balance the books. Make a goal, make a plan and get yourself there.
* I should buy a home because that’s what grown-ups do
Despite the ethos that everyone in Australia has the right to own their own home, buying a home is not right for everyone. Kochie argues that for some, renting and investing your savings can be a better financial option.
For others, they may see more results being able to buy a home and focus on paying down the mortgage (creating equity) as their investment strategy.
And some people just won’t be able to meet the big financial commitment that a home loan entails, even if they want to, and even if on paper, they look like they could. If this is you, consider that for now, you may be better off learning more about how to make credit work for you, to gain more money skills and adopt a different attitude towards money and credit before you take the plunge.
* If I dip into my savings now I can always make up for it later
Kochie advises it’s way more productive to leave your savings untouched and earn extra to pay for the item or experience. If you are saving for a home or business loan, then more savings means cheaper credit.
* If I get approved for a loan or credit limit increase, I can afford it
Kochie says this is probably the most dangerous of all lies. “Forget what the bank is offering in terms of increased credit card limits or loan amounts, only you really know what you can afford,” he says.
Remember, the bank doesn’t have to pay your loan back – you do.
Some other lies you can tell yourself about credit which you shouldn’t:
* No news is good news when it comes to bills.
No its not! If you think you should have received a bill and haven’t, the best thing you can do is chase it up. Nine times out of ten your Creditor thinks you should have received it, and you accrue days in arrears, meaning they may default you anyway whether you received the bill or not. This is especially important if you change addresses.
*If I love someone, money doesn’t matter.
Money still matters and when it comes to credit accounts, love may be blind but your Creditors are not. You need to keep your head in money matters when love is good and when love goes bad. Sometimes joint credit accounts can land you in hot water. Cover yourself and your credit file against the worst.
* Someone else will tell me if my credit file is not accurate.
No they won’t, it’s up to you to be proactive. There is an avenue for complaint if you think your credit file is inaccurate, but the responsibility for finding out whether everything is correct rests which the individual credit file holder. So it is really important that you do an annual credit check (which is free) through Australia’s credit reporting agencies. Don’t leave it until you’re applying for a home loan to find out you have defaults or other credit listings you don’t think should be there.
To find out more about credit file accuracy, visit our main site www.mycra.com.au or call a Credit Repair Advisor tollfree on 1300 667 218.
Image: Teerapun/ www.FreeDigitalPhotos.net