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The post Five things you need to know about Comprehensive Credit Reporting (and how it may affect you) appeared first on Credit Simple.

A personal loan is a monetary loan you can get from a credit provider such as a bank, credit union or online lender – usually for a specific life purpose like renovating your home, paying for a holiday or consolidating several smaller loans.

Lenders approve personal loans by evaluating your creditworthiness.

When you enter into a contract for a personal loan, you typically receive money in a lump sum and agree to repay the lender back the money in regular instalments over a specific length of time.

You also pay interest on the amount you borrow, and in some cases, you may pay fees and other charges. These interest rates, fees and charges can vary from lender to lender, loan to loan and borrower to borrower.

How do personal loans work?

If you’re considering a personal loan, you should become familiar with some of the details, including how much you can borrow, how to apply and how much they cost. Here are some of the main concepts to remember:

• The amount you can borrow. Personal loan amounts can be very small or very large. We’ve seen lenders offer loans as little as $500 and as large as $70,000.
• The application and approval process. You can apply for some personal loans online in a matter of minutes and be approved (or denied) just as quickly. With others, you may have to visit a branch and it may take days for the approval process to complete.
• The cost. On top of requiring you to repay the loan amount, lenders make their money by charging you in a number of ways. These may include interest on the loan, as well as fees like an establishment fee, monthly fees, late payment fees and early discharge fees. Your specific combination of charges will be described in your contract.
• The loan term. This is how long you’ll be paying off the loan. We’ve seen loan terms as short as 3 months or as long as 7 years.
• The amount of repayments and when they are due. Your loan amount, interest rate and loan term will be set in advance, so it’s easy for the bank to calculate exactly what your regular payments will be and when they are due.

Types of personal loans

Here are the main types of personal loans you may encounter:

• Unsecured personal loans. Your standard personal loan you can use toward various life projects like a holiday, home renovation or medical bill.
• Car loans and other secured loans. A personal loan where you offer up an asset as collateral in case you can’t make your payments. This collateral is officially known as the security. Take for example a car loan, where the purchased car serves as security that the bank can repossess if you can’t make your payments
• Debt consolidation loan. A special type of personal loan you would use to pay off several smaller loans.
• Line of credit. A personal loan where a specific amount is available for you to borrow, but you don’t have to borrow it all. You only pay interest on the amount borrowed.
• Quick cash loan. A personal loan that doesn’t have a strict acceptance criteria so that people with lower credit scores can get the loans they need. These often come with higher interest rates and fees.

How much do personal loans cost?

The cost of personal loans will differ from person to person and loan to loan. A large part of this comes down to your creditworthiness. For example, someone with a higher credit score and a more positive borrowing history will often pay less for the same loan than someone with lower marks.

Here are some factors that will determine how much you’ll pay:

• Interest rate. This the percentage your debt will increase every year. Most personal loans will charge an interest rate. The Australian Securities & Investments Commission has capped interest rates at 48% but we’ve seen rates as low as 5.75%.
• Fees. Many loans will also charge fees on top of the interest, such as a one-off establishment fee to set up the loan or even monthly fees. Some very small loans might do away with an interest rate altogether in favour of one set loan fee.
• Comparison rate. This is simply a loan’s interest rate when fees are factored into it. Since not all loans charge the same fees, this comparison rate makes it easy for you to compare the loan cost of several loans side-by-side.
• Length of loan. Since your interest rate adds to your balance each year, the longer you have your loan, the more you’ll end up paying in the long run (all else being equal).
• Amount borrowed. Generally speaking, the more you borrow, the more you’ll end up paying for the loan.

How do you apply for a personal loan?

1. Decide how much you want to borrow. Work out how much money you need for your holiday, home renovations, debt consolidation or whatever personal project you need the funds for.
2. Work out how much you can afford for payments. Use a loan calculator to work out how long you’ll need to pay back the loan, based on how much you can afford to pay back per month.
3. Compare personal loan options. Identify a few lenders with loans that meet your criteria from the first two steps. You can find special loan offers for Credit Simple users here.
4. Gather your paperwork. Gather together any paperwork the lender asks for. This may include ID, bank statements and proof of address.
5. Apply. You can apply for most personal loans conveniently online.

Does applying for a personal loan affect your credit score?

When you apply for any loan, your credit score can dip slightly. However, with Australia’s Comprehensive Credit Reporting system, regular on-time payments can help your score go right back up.

Some lenders will advertise something along the lines of “free rate quote that won’t affect your credit score.” This means they will quote you a rate based off of basic info like your income and the amount you want to borrow – without doing a credit check.

But this is not the same as applying for the loan. If you want to apply for the loan based on the rate quoted to you, you will usually have to go through a credit check and your score may dip as a result.

Who should get a personal loan?

You should only get a personal loan if you have a specific purpose in mind for the money: to help pay for a special project, purchase or life event, or to help out in a time of emergency.

Taking out a lump sum without any real purpose for it could lead you to squander it and end up with a large debt with not much to show for it. For regular ongoing purchases you plan to pay off regularly, you could consider a credit card instead.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual or business. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post What is a personal loan? appeared first on Credit Simple.

Australians are making credit card purchases now more than ever. In 2017, there were over 16 million credit cards in Australia, and Australians spent a total of $315.6 billion using credit cards.

Needless to say, credit is a popular topic. However, it’s also something many Australians stress about regularly. Understanding what information is in a credit file can answer many questions related to credit woes, and Credit Simple is here to help.

The good

That’s right—there can be positive information on your credit file. Australia recently made a change to add more information to credit files, referred to as Comprehensive Credit Reporting (CCR). This new system allows lenders to view your entire credit history, including all of the good stuff you’ve done related to your credit — for example, if you paid off a credit card in full or continue to make regular, on-time payments.

This way, the positive things you’ve done could outweigh anything negative when lenders are assessing your file. Additionally, if you have only had credit for a short period of time, it can also help you to have a comprehensive report because even the small steps you’ve taken in that short amount of time will beef up your credit history.

Comprehensive credit reporting allows lenders to have a well-balanced perspective of your ability to take on new lines of credit. (Want to know more? Download our free ebook here.)

The bad

Unfortunately, there may be negative items on your credit file as well, which can lower your credit score and give lenders pause. While not always negative, information can include any current lines of credit you have and the respective credit liability information for each, and the number of loan or credit card applications you’ve submitted, which can be a negative thing if you’ve been applying too much. This includes any commercial loans you’ve applied for.

In your credit report you will also find any defaults or credit infringements, debt agreements, late payments, and any overdue fines. Keep in mind that even if you have now paid an overdue bill, lenders can still see that it was overdue previously.

If you have any joint applications, or have signed as a guarantor on a loan, these details will also show up on your report. And any credit report requests that lenders have made will show up on your file.

The rest

There will also be personal information in your credit report. This will include your name, addresses (current and previous), date of birth, and employment and driver’s licence number. ASIC recommends being wary of sites that ask for your credit card information to give you a free credit score, and to watch out for scammers who are just trying to get personal details from you.

You can find lots more information about your credit score on our site, or click here to check your credit score and see if you have a clear score.

The post What exactly is in your credit file? appeared first on Credit Simple.

Have you noticed a dip in your credit score? This could mean many different things. The amount of credit you have, the age of your credit or any altered credit limits could all make your score go down.

Comprehensive Credit Reporting (CCR) changes in Australia made earlier this year could impact your credit score as well.

While there are many possible reasons why your report changed, let’s look at these common factors.

Comprehensive Credit Reporting changes

As of July 2018, CCR changes were implemented nationwide. Under this system, lenders can see more positive information about your financial history. This means they can have a more accurate snapshot of your credit behaviour.

Before CCR, most of the information on credit reports was negative. For example, late payments, defaults or bankruptcies showed up. Incorporating positive information, such as on-time payments, quick default recover and responsible credit behaviour, will now be visible to lenders.

According to MoneySmart, new information that may affect your credit score includes:

• The type of credit you’ve held in the last two years.
• Your usual repayment amount.
• Your repayment habits: frequency and whether you pay on time.

Other common factors in a credit score reduction

There are several other reasons that your credit score may decrease from one month to the next. Here’s a look at common factors.

Recently applied for credit

Credit scores include information about recent credit applications. If you have applied for a personal loan or another credit card, this could make your score dip. Try to limit your enquiries for new lines of credit.

Age of credit

Lenders like to see that you’ve had credit for many years. If you’ve handled credit responsibly over that long period, lenders are more likely to “reward you” with a boost to your credit score.

Change to credit limit

Under CCR, lenders can see more positive information about your financial history.

If your credit limit was recently raised by a lender, this could be a reason your score dipped. Money Smart says that one way to get a higher score is to lower your credit card limits.

Late payment

Did you make a late payment recently? While this isn’t the end of the world, it could affect your credit score negatively. Start making each and every payment on time and you can make up for the loss in no time.

If you’ve noticed a decrease in your credit score, try not to fret over it too much. By building up responsible credit behaviour over several years, you can get those numbers higher and look more attractive to lenders.

For more information about changes to your report, contact Credit Simple. We provide free credit scores as well as benefits for members. Sign up today!

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