Should I get a credit card before I apply for a home loan?

I’m saving for a home loan and currently have no credit history. I know lenders often consider credit scores when assessing loan applications. Would it be beneficial to take out a small loan, such as a credit card, to build my credit history and improve my chances of approval in the future?

Having a strong credit history can help when applying for a home loan, as lenders assess your ability to manage debt responsibly. If used wisely, a credit card or small loan can demonstrate reliability.

If you’re not careful, taking out loans could see you weighed down by unnecessary debt.Credit: Simon Letch

The key is to make small purchases and repay them on time to build a positive record. However, avoid unnecessary debt – lenders also consider your debt-to-income ratio.

If you prefer a safer option, some banks offer credit products like secured credit cards or small overdrafts that help establish credit without encouraging overspending.

That said, credit history is just one factor. A solid savings record, stable employment, and a sufficient deposit also play a big role. If in doubt, speaking to a mortgage broker can help tailor a strategy to your goals.

In your response to a recent published question, you stated that aged pension recipients must notify Centrelink of any material change in their assets or income.

Does this reporting requirement also apply to superannuation drawdowns when the funds are used for gifting within the allowable limits (i.e., up to $10,000 per year, with a maximum of $30,000 over five years) to assist adult children with a home purchase? I understand “material” in the Australian Accounting Standards sense, but Centrelink may define it differently. Could you clarify?

Regan Wellburn from My Pension Manager advises that a superannuation drawdown is considered a notifiable event for Centrelink. If in doubt, it’s always safer to report any financial changes. This ensures you won’t be underpaid or, worse, end up owing Centrelink money.

Any change of $2,000 or more in financial assets – such as bank accounts, super, or shares – must be reported within 14 days. For non-financial assets like cars or home contents, the threshold is $1,000. Gifting is also a notifiable event, even if it falls within the $10,000 annual limit.

The simplest way to update Centrelink is through your MyGov account. This provides a record of your update and allows you to review and adjust your income and asset details as needed.

A relative is about to enter aged care and will use some of her super to pay the entire accommodation bond, leaving her with around $350,000. A financial adviser suggested she withdraw the remaining super and place it in a safer option, like a term deposit, given her likely short-investment time frame. He believes she should avoid any risk. Do you agree with this approach, or would you recommend a different strategy for managing her remaining funds? She is receiving a substantial part-age pension now.

The biggest risk here is the death tax that may apply to her super if it’s left to a non-dependent such as adult children. Since she’s entering aged care, her time frame may be limited. Cashing it out and putting it in the bank could provide peace of mind while also avoiding the tax.

Options to slightly increase her pension include pre-paying for her funeral and considering gifting money to her intended beneficiaries so she can enjoy seeing the impact it has on them. Making gifts of $10,000 before 30 June and another $10,000 on 1 July could reduce her assessable assets by $20,000.

I am 70, retired, and do not have a super fund. Can I still open a super account and make a catch-up contribution? I am thinking of selling my investment property, and there will be capital gains tax to pay. I understand tax-deductible contributions could reduce the CGT.

It is possible with some planning, but to make concessional tax-deductible contributions, you’ll need to pass the work test since you’re over 67. This shouldn’t be too difficult for a resourceful person – all you need to do is work 40 hours in a paid job within 30 consecutive days during the financial year you make the contribution.

It’s worth the effort, as you could potentially access $160,000 or more in tax deductions. Make sure you liaise with your financial adviser or accountant.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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