Recently one of our clients had triplets. They were only planning one baby but three were conceived naturally and they already had another young child. Sam, a young dad still in his 20s, urgently needed a new car to accommodate his expanding family but when he applied for a car loan he discovered two banking and finance defaults on his credit file. The babies were born and were still in humidicribs when Sam contacted me for help. The cost to Sam of a poor credit rating was not being able to finance a car, at the moment he needed it the most.
The cost to Sam: No car for the triplets
Tracey had been employed full-time for 2 years, with a solid, stable income, and had saved a deposit for a new home. She had been dreaming about this house for years and wondered if she would ever get there. She started looking and found some places she liked. This would be the beginning of a great, new chapter for her. She did some research and found a mortgage broker, and started the process of applying for a home loan. Her mortgage broker wisely asked her if she had any issues with her credit file. She asked Tracey’s permission to order a copy of the credit file to make sure it was clean. It wasn’t.
Tracey had an old credit card debt that got out of control 3 years ago when she divorced, and she had to find new accommodation quickly. Soon after she paid the debt in full. But this black mark meant she could only be approved for high interest finance through a second-tier lender. They charged an up-front fee of $10,000, and offered an interest rate 2 percent above what she could get if she had a clean credit file. As a result she had to dip into her deposit to pay the $10,000 application fee which raised her loan to valuation ratio (LVR) to 90%, requiring her to now buy lenders mortgage insurance (LMI). In addition, she would have to pay $1000 extra in interest a month, until the listing dropped off her credit file in 2 years.
The cost to Tracey: $44,000 (application fee, LMI and 2% higher interest for 2 years)
Richard and his wife had rented properties for years and were keen to buy their own home. He and his wife had stable employment and had saved a deposit. They had three children aged 4, 7, and 9. His broker ran a credit check and told Richard the bad news. There was a court judgment on his credit file that would remain there for another 4 years. The judgment had arisen as part of a commercial dispute that had now been settled. But Richard could not get a loan that he could afford. His broker could not recommend a second-tier lender because the interest rates were so high that Richard would be put in hardship trying to pay the monthly installments. The cruel twist was that the property market would continue to rise over the next 4 years so by the time Richard’s credit file was clear he wouldn’t be able to afford to buy a house, with the rising cost of housing and bringing up the kids.
The cost to Richard: remaining stuck in a rental cycle he could never break free from.
All these scenarios were resolved by using a reputable credit repair company to erase incorrect adverse listings from credit files. Sam got his car for the triplets, Tracey got the house she dreamed of, and Richard and his family broke free of the rental cycle and moved into a home of their own. They all paid the lowest interest rate possible. They all believed that the cost of credit repair was minuscule compared to the costs they were facing with adverse listings on their credit files.