Want money from the bank? Be honest
A new initiative being adopted by the New Zealand credit industry is set to make it easier for those looking to obtain a mortgage or other line of credit.
Changes have been made to the Credit Reporting Privacy Code 2004 which enables the use of Comprehensive Credit Reporting or 'CCR'. When banks assess a lending application they often check with a third party credit bureau as to whether any adverse credit information is held about the customer, such as a loan default.
In addition to any negative information regarding an applicant, CCR allows positive information to be held, such as the accounts a customer has and how well they meet their loan repayments. Those able to use CCR include banks, finance companies and some utility companies, such as phone and power.
ASB head of home lending and deposits, Vince Clark, says this helps lenders make better and more informed decisions. For customers, he says it provides an opportunity to demonstrate good credit behaviour, or where there's been recovery from a credit event in the past.
ASB is one of a number of lenders transitioning to the use of CCR over the coming months.
So what does the bank look for when you are applying for a home loan, or other type of credit? Clark says most lending decisions are based on the core principles of willingness and capacity to repay.
Willingness to repay is about a credit provider understanding your track record with lending, such as being up-to-date with repayments or a demonstrated commitment to get back up-to-date with any late repayments.
Capacity to repay is about having spare, uncommitted income to meet your loan repayments once all other expenses are taken into account.
But, will that overdue phone or electricity bill count against me when applying for a mortgage?
No, not necessarily, says Clark. Lending decisions are based on a combination of factors which, when aggregated, build to a picture of an applicant's willingness and capacity to repay.
Clark says it often helps if customers have built up a relationship with their bank over time especially when applying for more significant lending such as a mortgage. He advises would-be credit seekers to make their current bank their first port of call.
"They are likely to know more about you than anyone, so you should expect a better outcome that way."