Debt surprises hitting young Australians: how to repair them

Many young Australians are denied loans because of defaults on their credit reports. This is how to fix the problem.

A good credit score helps prevent loans from being denied.

Young adults are being denied mortgages and other loans because of problems on their credit files that they didn’t know they had.

Unknown defaults related to unpaid bills create the biggest nasty surprises, but debt specialists say there are several ways for people to repair credit file damage and improve their chances of getting a loan.

It was only when Tye Moxham-McGuire, 25, applied for a mortgage that he discovered there was an issue with his credit file dating back four years.

With help from his employer, mortgage broker and Credit Repair Solicitors (CRS) the problem was removed and he was able to buy a house.

“I am the first person in my family to become a homeowner,” Moxham-McGuire says.

“I had no idea about credit reports and credit scores and how this works, but now I know about it,” he says.

“I am so happy to own my own home … and I now check my credit score every month online.”

Tye Moxham-McGuire, 25, is the first person in his family to own a home.

GET IT FOR FREE

CRS principal solicitor Pasha Mehr says many young people are denied loans because of defaults on their credit reports “and quite often they are unaware of it”.

“The main bills that lead to defaults for young Australians are telecommunications, utility and lending companies,” he says.

“Due to the Covid-19 pandemic, there has been a significant increase in defaults listed on Australians’ credit reports. The data suggests this is set to escalate further over the 2021-22 financial year.”

Mehr says Australians are generally unaware of their credit reports.

“In the US, it is a common joke that most people know their credit scores before they know their own blood type,” he says.

Mehr says people can get a free copy of their credit report from credit reporting bureaus such as Equifax, Illion and Experian.

“These bureaus keep records on you, including your financial history and your credit score,” he says.

AVOID MULTIPLE APPLICATIONS

People can improve their file by avoiding making too many inquiries for finance, and paying all bills on time – especially loans and credit cards. “Where possible, set up direct debits as to not miss a payment,” Mehr says.

Financial education is a key factor, and Experian general manager of credit services Tristan Taylor says a great resource is the creditsmart.org.au website, developed by industry body Australian Retail Credit Association.

Credit reporting bureaus can provide people with a free copy of their credit file.

Taylor says lenders have a deeper insight into people’s debts following the introduction of comprehensive credit reporting in recent years.

“Lenders can now see what type of credit accounts people have, what their credit limit is, and take into consideration behaviours such as whether they’ve missed any repayments, and how quickly these are paid back,” he says.

“Think about it like a game of footy. Under the old system credit scores were only impacted by the negative things someone did like missing a pass. Under the positive system, lenders can also see all the good things someone is doing too, like a good tackle or kicking goals.”

Taylor says rebuilding a low credit score is “something that takes time” and will depend on factors such as the number of missed repayments and how recently that happened.

“It pays to proactively manage the health of your credit score by checking your credit report regularly,” he says.

REBUILD A LOW CREDIT SCORE

• Make all repayments on time. If you slip behind, aim to catch up within 14 days so it’s not reported as being in arrears.

• If experiencing hardship, contact your lenders immediately.

• Remember that too many inquires in a short period can lower your credit score, so space out credit applications where possible.

• Consecutive late payments and significantly late payments are the most damaging to your credit rating so avoid these.

• You can check your credit report for free every three months to see how your score evolves as lenders take into account more positive data.

Originally published as Debt surprises hitting young Australians: how to repair them