How checking your credit report could save homeowners thousands

Following last week's interest rate rise, many homeowners throughout Australia are wondering the same thing: How much will this add to my mortgage repayments, and can I get a better deal at another bank?

As the cost of living continues to soar, comparing rates and lenders can be a great way to ease the financial pressure that many homeowners are under. It's a sensible step, but far too many Australians are skipping something that takes minutes, costs nothing, and could potentially save you thousands of dollars each year: checking your credit report.

Lenders across Australia decide how 'risky' an applicant is based on their credit history and credit report. That means if you have poor credit health, you might end up paying more, while good credit health unlocks better rates and more competitive products.

However, to ensure you're in the best position possible, you have to be familiar with your credit report and what it means for your finances. So before you refinance, renegotiate, or apply for a new home loan, here's why you should first check your credit report.

Your credit report is part of the price you pay

A mortgage rate is not just about the headline numbers on comparison sites. Lenders look at your overall application, including your income, expenses, existing debts, and your credit report, before deciding what rate and loan product is right for you.

Put simply, your credit report is a record of your credit history. It can include information like what credit accounts you have, how your repayments have been managed over time, and a history of credit applications.

From a lender's perspective, this is part of how they assess how risky you are as a customer. From your perspective, it can be the difference between qualifying for a lower rate or being offered something higher, even in the same market.

A small difference adds up quickly. On a $600,000 loan over 30 years, a 0.25 percentage point higher rate can mean roughly $100 more per month. Over time, that becomes tens of thousands of dollars that could have stayed in your pocket.

Why now is the moment to check your credit report

In addition to the RBA's interest rate rise, many homeowners throughout the country are approaching the end of their fixed-rate loan periods, and repayments are shifting as a result. If you are about to shop around, you will likely be asked for permission to run a credit check on your credit report as part of every new application.

To improve your bargaining position, it's important that you know what potential lenders are seeing on your credit report. This will help you in two key ways:

First, it will help you make more informed decisions about what rates are realistic and achievable based on your credit health.

Second, it will help you avoid making too many  applications to different lenders in quick succession, which can make you look riskier than you are. When you know your bargaining power based on your credit report, you can strategically apply for the rates and products that are best for you.

It's easy, fast, and free to check your credit report

Australians are entitled to a free copy of their consumer credit report from a credit reporting body every three months, and sometimes more often in specific situations. If you only do one thing this week, make it this.

Once you have your report, focus on three checks:

1. Make sure the basics are correct

Start with your personal details. Errors can happen, and mismatched information can complicate an application. If anything is wrong, take steps to correct it through the relevant credit reporting body.

2. Look for issues that could be costing you

Scan for defaults you do not recognise, accounts you never opened, or repayment history that does not match reality. If you see something that looks incorrect, dispute it. Fixing errors before you apply for a new loan can make a real difference to how smoothly your mortgage process runs.

3. Review your credit enquiries

If you've been shopping for credit products, you might see multiple enquiries listed. This is one reason it helps to plan your refinancing approach before you lodge applications with several lenders. A scattergun approach can do more harm than good, so it's often better to narrow your shortlist and focus on products more suited to your credit health.

If, after completing these three steps and trying to get a better rate, your loan repayments still feel unmanageable or overwhelming, make sure you contact your lender to discuss your options. When you're experiencing financial hardship, you may be able to access temporary adjustments to your loan, such as deferred or reduced payments.

It's important to remember that financial hardship assistance will not affect your credit score, but missing payments before you discuss your situation with your lender can. This is why it's essential to contact your bank as soon as possible.

Rate rises should not only prompt Australians to look at repayments; they should also prompt us to better understand how our credit health plays a role in the financial products and services we're able to access.

By arming yourself with your credit report, you can widen your loan options, strengthen your negotiating position, and avoid paying more than necessary for years to come.

If you're not sure how to get started, CreditSmart's free resources can walk you through how credit reporting works and how to access your information.

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