Bad credit ratings can cost borrowers an extra $177,000 in mortgage repayments

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on February 25, 2020
Bad credit ratings can cost borrowers an extra $177,000 in mortgage repayments

Photo by Denise Jans on Unsplash

Credit ratings provider Credit Simple found a bad credit rating can cost an extra $177,607 in repayments over a 25 year home loan.

That figure is calculated on the difference in home loan interest repayments one faces if they have a bad credit rating as opposed to a good one.

Credit Simple found consumers with a good credit rating could access home loan rates as low as 2.80% p.a, while those with a poor rating faced rates of 4.80% p.a. or higher.

On the average Australian home loan of $357,000, as calculated by Illion's Mortgage Nation report released Monday, that could mean a difference in repayments of more than $170,000 over a 25 year loan - or $7,104 a year.

Credit Simple chief David Scognamiglio said 'deadweight flatmates' in your 20s can affect credit ratings, and has a flow on effect later in life.

“If your potential flatmate has a champagne taste on a beer budget, or is simply reckless with responsibilities, it’s worth thinking twice before sharing a lease, as their bad habits can impact you in the future,” he said.

“If you were the one shouting most of the drinks and late-night kebabs last year at uni for your mate, reconsider whether they are in a good financial position to share bills with you.

"If your name is on the bill, then you’re the one putting yourself at risk."

The credit score checking platform chief said building up a good credit rating can be built with simple things like paying electricity bills on time.

“The odd missed bill adds up," Mr Scognamiglio said.

"What seems like a harmless slip-up can come back to bite you in the future – whether it was you or your flatmate handling the share house finances."

Below is a handful of low-rate home loans you could be able to access if you have a good credit rating.

Lender

Variable
More details
UNLIMITED REDRAWS
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWS

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
  • Low rate home loan with added benefits, add offset for 0.10%
  • Save thousands & make an environmentally conscious choice on your loan for homes less than 12 months old
  • Get a 7.0 star NatHERS rating or higher for up to 1.59% discount on your variable rate home loan T&Cs apply

Green Home Loan (Principal and Interest)

  • Low rate home loan with added benefits, add offset for 0.10%
  • Save thousands & make an environmentally conscious choice on your loan for homes less than 12 months old
  • Get a 7.0 star NatHERS rating or higher for up to 1.59% discount on your variable rate home loan T&Cs apply

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of August 7, 2022. View disclaimer.

How to avoid credit rating slip ups when flat sharing

Mr Scognamiglio has identified five checks students can do to eliminate potential 'deadweight' flatmates.

"Check employment - make sure they have a secure source of income to cover bills," he said.

"Get references – ask around your friends who may have lived with the same person in the past to check whether they’re responsible and reliable.

"All names on the lease – a check by the real estate agent is a good safety net before you move in. If the agent doesn’t think they’re trustworthy after compulsory checks, they’re probably not.

"Share the risk – put the bills in different names. Don’t be lumped with all the responsibility of various utility bills.

"Have a house kitty - by agreeing to put a set amount into a kitty each week you can keep on top of bills from utilities to groceries."

He also said keeping a good credit rating while young can go a long way in the future.

“Once you find the right flatmate and property, make sure you keep up the best credit behaviour possible," he said.

"Comprehensive credit reporting means lenders now look at both positive and negative credit reporting, so it pays to cover bills on time. 

“If you do find yourself stuck in a situation with a financially irresponsible flatmate, there are steps you should take to cut financial ties when you move out.

"Remove your name from the lease and bills when you leave – otherwise any late payments made in your name will directly affect your credit score, whether you realise it at the time or not.”

Credit Simple is a subsidiary of Illion, and is in partnership with National Australia Bank to provide Australians with free credit checks.




Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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