How important is an established credit history?
I’ve been asked the following question by a gorgeous mum looking after her 20-something son, he is a really great saver and has saved enough money to purchase a car outright (good on him!) but her question is, should he take out a loan for the car anyway to establish a credit history for when he’s ready (down the track) to buy a home?
This goes to the old school thinking that we need to show that we have successfully repaid loans in order to qualify for a home loan.
If you have a mobile phone (chances are) you have a credit history.
While this never hurts, where it’s at today is more about the savings history speaks loudest. Your savings history shows how good you are with money – and this combines with your balance sheet (assets vs your liabilities) to form a big part of assessment criteria.
What about your credit history - obviously a good credit history is important, but if you have a post paid mobile phone then you have a credit history. Up until last year the way this was handled was a little mark that says a credit provider has looked at you combined with nothing that says you haven’t made your payments then you have a good credit history. This was called a negative credit history regime – only negative stuff was recorded and the absence of negative stuff was good.
Last year we changed modes; and some lenders are still catching up, but now we have ‘positive’ credit reporting, where lenders are reporting that you did make your payments on time, or you did – but it was a day late, or you did – but it was a few days late – or you didn’t at all.
So what was the advice for our saver? In his case the timing was right for him to spend his cash on the car and keep saving for his house as he’s not in a hurry – no need for a loan to establish history & certainly no need to pay unnecessary interest. However he could also have taken a small loan with no early exit fees and paid it off quickly (no need to pay too much interest) or he could take a small credit card $1,000 limit perhaps to establish his history.
Western Weekender article https://issuu.com/weekenderpenrith/docs/property31march/12
