Budgeting 101 – Part 1

 Budgeting comes in all shapes and sizes; to budget correctly we need to understand our finances. In this 3 part post we will cover off a credit report, the smart way to borrow, budgeting and saving.

Working full time, paying bills, looking after the kids or just trying to live can sometimes get you really down! I know that when I was younger my mum had to go to a local church and use food vouchers to be able to live for just another week longer.

While working in finance, I see people in bad financial situations that don’t know how to get out of it. People get loans and credit cards to pay off their current loans and credit cards causing a never ending cycle of debt. I’m glad that I’m in a position to help them because life shouldn’t be this hard, right!

In my experience going to “budget” companies that claim to help is rubbish! They charge high fees, sometimes taking as much as $1500 for admin fees over a few months. When you think about it these funds could go to paying off a portion of your debt.

Credit report –

It surprises me how many people don’t know what can and can’t affect their credit file/report. This is something that I think really needs to be taught in schools. Education is the key. I hope to be able to provide some education on this topic.

Your credit report contains personal information such as name, date of birth, current and previous addresses, employment and driver’s license number, your credit history eg: the loans you have applied for, outstanding defaults or judgements and any directorships. Your credit history is provided by “Veda Advantage” which is Asia-Pacific’s leading provider of consumer and commercial data. In short, Veda knows everything about your credit history.

Each time you make a loan application this appears on your credit report (even if you do not take out the loan), this will show information such as the date you have applied for finance, which company was through, the amount and what type of account it is eg: loan or credit card.

So you do the right thing by going to several financial institutions (FI) to get quotes but as the “banking world” has evolved to offering more options online, people are under the general impression that when you are filling out an online form and provide all of your details, you are asking for a quote to be sent through when instead you are actually making an application, so be wary of this. This is where people encounter problems as they go to 5 or 10 different FI’s ask for an online “quote” to find out they have made an application, in the end negatively affecting their credit report.

What are Defaults?

If you don’t make payments on a debt you have (eg: a personal loan, home loan or phone company etc anyone you are in a contract with or are required to make regular repayments to) they can decide to take further action to recover the funds that are owed to them. They may only list a default if you have not responded or made a payment after 60 days of the due date and if they have sent you written notice to that last known address.

A default will remain listed on your credit report for 5 years. Once you have paid the debt, the default listing stays on your credit file but is updated to show you have made payments. Defaults can sometimes occur as easy as if you move houses and forget to update your details or cancel your gas bill.

Having a default on your credit file can mean that you are rejected for loans, so make sure you check your credit file regularly and ensure all defaults are paid immediately. MyCreditFile.com.au   Is a fantastic website to regularly check your credit file. It is best to request a free copy of your credit file at least once a year or at a time where you are looking to take out a loan.

Avoid getting sucked into companies that offer to “fix or improve” your credit file. Repair companies charge up to $1000 to “fix” one default; if the company is unable to remove the default (which is usually the case) you are still required to pay them for their services. In most cases, going to these types of companies can have a negative effect on your credit file and FI’s may be hesitant to lend to you. If you feel you have a default listed in error please contact the financial institute/creditor and ask for this to be removed. If the company is unwilling to remove the default and you feel that this is unreasonable, you can contact the Ombudsman their services are free.

In Part 2 we will cover off “the smart way to borrow” to help you avoid this.

Disclaimer: I’m not a financial planner and I’m not qualified to give advice. This is a personal blog and most of the content here is based on my own experiences working in finance and opinions. I hope to use this site to help others. My opinions are my own and I am not influenced by anyone else.