As the housing market consistently reports a dip in auction clearance rates in some of Australia’s major cities, it may be a good time for those looking to settle down to take advantage of the lowered pricing and finally take the plunge on a first home.
The good news doesn’t stop here.
First home buyers are also seeing one of the biggest boosts to their perceived credit worthiness thanks to increased data sharing amongst lenders, despite also having some of the worst credit card repayment histories of all demographics, based on our new research*.
We analysed 9.2 million individual credit card holders and 14 million open credit cards across multiple lenders to find out how everyday Aussies are affected by comprehensive credit reporting (CCR), which the big four banks and other lenders such as Citi and HSBC are now taking into consideration as part of their wider decision-making process when determining whether or not to approve a loan application.
Breaking the findings down for first home buyers
What we found was that 5.8% of first home buyers and young families in new homes across Australia’s fastest growing suburbs have missed a credit card repayment in the last 3 months, more than twice as likely to fall behind in payments as the most affluent group of borrowers in Australia (2.8%). This demographic largely falls in the 25-44 age range with children below 14 years old with an average weekly household income between $1500 – $2499.
Despite being the potentially riskiest group of borrowers (or just the most forgetful), the majority of first home buyers and young families are seeing a boost to their credit worthiness rating, with an average 4% jump in their credit scores now that lenders are sharing positive credit data.
Our research additionally found those in the 18 to 25-year-old bracket will see the biggest increase in credit scores followed by 25-35-year-olds. It also shows new positive data will help younger Australians, or those without a long credit history, build one more easily and quicker than before which is useful when applying to a creditor with whom you have no prior history.
So what can you do to improve your scores?
With the shift to positive data reporting and lenders looking at credit histories among other indicators such as employment records to guide home loan approvals, there are steps that you can take to improve your credit scores.
1. Be conscious of how you are using your credit card
While it might be tempting to have multiple credit cards to fit various needs, our research found a correlation between the number of credit cards held by consumers and their credit scores, with scores tending to decrease as the number of cards increased. For example, an individual with two credit cards is 54% more likely to miss a payment than those who only have one.
2. Make payments reliably
Set reminders to help you make sure you pay off your loan and credit card bills on time. If you find that you have lapsed in a payment, you should pay it off as soon as you can to show that you were quick to rectify it.
3. Be proactive and take ownership
Check your score. Our Know The Score research worryingly showed that 65% of Aussies have never checked their credit score. With the introduction of CCR, it is more important than ever for you to be checking your score and doing this regularly to take advantage of any increases in your score or make sure you are not applying for a home loan with a poor credit score.
A good understanding of your finances is the key to unlocking the full benefits of the recent banking changes. Discover more about credit reports, credit scores and how to look after you credit health in our Education Hub or the industry website CreditSmart, created by the Australian Retail Credit Association (ARCA).
Get your free Experian Credit Report ahead of applying for your home loan to get a view of your Experian Credit Score.
*The research was based on Experian’s credit bureau data of 14 million open credit cards and a population of 9.2 million individual open credit card holders. The comprehensive score component is based on 2.5 million individuals with open credit card information and looks at three months’ worth of credit card information.