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Check Your Credit Score and Borrow More - Part 9

Heidi Armstrong explains everything about your credit file and how it affects how much your lender will lend to you when shopping for a home loan.

By understanding how your credit file is created and updated, you can make sure you keep it looking good. Heidi also explains how a lender calculates your borrowing power.

The live session is divided into 11 videos, packed with information you need before applying for a home loan in Australia.

Video transcript below:

Part 9 of 11
Check your credit score and borrow more
Heidi Armstrong, Director of Operations, State Custodians
Discounting of rental income.  If you are in investor, you know you are obviously going to, you know you rely on your rental that comes in.  Some lenders won’t for the property that you are buying, if you are buying an investment property.  They will take the 100% of the rent that you are going to receive on that new property.  But still discount the other one.  
Credit card limits, a classic, a classic here, this is a big killer, this will almost be one of the second biggest killers after credit reports is your credit cards.  A lot of people will say, I have you know, 50,000 in credit card limits, I am a model citizen, I don’t ever use it, it’s just for [fun], I love to have it there.  And I pay off my credit card monthly.  
I think almost every lender that I know of will say, we will assume that your whole $50,000 in credit cards is drawn down and that you are making the minimum repayment on that $50,000 at that 20% interest rate or whatever it is that you have to pay.  And that let me tell you absolutely kills serviceability.  
Credit cards limits kill, high credit card limits kill serviceability and personal loans kill serviceability big time.  I find those two things, where often you go, you could go, “I just didn’t have that credit card limit.  Now credit card limits are good in that you can go close them easily.  
Personal loans are harder to go and close because you are actually, you know credit card limits are good, you don’t have the limit used.  So it’s easy to go and close, but definitely that’s a big killer for serviceability.  And you also need to remember your store cards. You know many people get caught out, they had a you know, AGC, GE interest rate card you know that they have never used, but it has a 5 time limit on it.  You have to remember all of those things because it will be on your credit report and your lender will ask you about it.
Common Debt Reducers
So this happens a lot, husband and wife, you have a, your home and the husband is going to go and buy a property and put it just in his name and the loan is going to be just in his name.  Husband and wife both work and they are both, well their income is going into reduce the mortgage on the home.  So when the husband goes to apply for the loan, some lenders will say, “well Mr. Husband you are jointly and severally liable for this home loan.”  
You actually, because you are only applying for this in your own name, we will just look at your income and you need to service this debt as well as 100% of the home mortgage just on your income and that can really kill a deal, because the reality is the wife’s income is used.  Now some lenders will factor in a common debt, reduce it or say give me your wife’s payslips.
Let‘s just see evidence, We are not servicing it, but let’s just see  evidence that she works and earns an income and then we can say Mr. husband, alright we will only put in half of the loan from your home loan into the serviceability calculator for you on that investment property loan that you are looking for.
So common debt reducers are really important and timing, the timing of that.  Interestingly Mr. Husband had gone and applied for the investment loan first, it would be no trouble and then they applied for the home loan second.  So timing could, can often be a big factor in terms of serviceability.


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