Ever thought that paying a gas bill late could stop you getting a loan?

Graeme Salt

Ever thought that paying a gas bill late could stop you getting a loan? Right now, it probably won’t, but legal changes coming soon could have a revolutionary impact on people getting a mortgage. Whenever someone applies for a home loan, the banks automatically run a credit check. Currently, these checks provide information such as how often someone has applied for a loan or whether they have defaulted on any repayments. However, changes to the Privacy Act could have a dramatic impact on who gets a loan and who does not. Indeed, some people whose practices currently stop them getting a loan could be successful with future home loan applications. While those who would normally now receive mortgage approval could be turned down by the banks in future. Right now, when a bank runs a credit search it could turn someone down if they have made multiple loan applications and/or if they have defaults on their file. However, with new legal changes, we are entering a whole new ball game. As of March 2014, the information provided to the banks will be completely different. The sort of information that will be provided in credit checks could include: - If someone has made multiple loan enquiries – but crucially, if the applicant actually proceeded with the loan - Repayment history information which will record if someone tends to pay their bills early, on-time, or late. For many paying bills late, without incurring defaults, is one of the ways that we manage our cash flows – we might wait for the reminder notice to come from Telstra or AGL before we pay the bill. For years this strategy has been really effective, but now it could actually be counterproductive. Imagine that you are a small business who delays making utility bill payments until you have to. Now imagine that you are thinking about taking out a business loan to buy, say, a new warehouse. The last thing that you would want is for the bank to turn you down just because another bank or a utility has you down as a consistent late-payer. So, what’s the out-take? Clearly, if these changes come into force, many of us will have to start thinking about how we pay our bills and when. The good news is that this legislation kicks in in almost 12 months’ time which means that you have time to get your house in order. Unfortunately it is unclear if, come March 2014, the banks will be relying upon your repayment history until then or starting from that date. But the last thing you would want is for your business plan to be ruined because you can’t get a loan for that expansion. So the lesson is clear – start paying your bills on time.