What to do in the six weeks before you apply

Most declined applications are not declined because the borrower could not afford the loan. They are declined because the file did not demonstrate that they could, or because something in it was easy to fix and nobody fixed it first.

A lender assesses what is in front of it. It does not know your intentions, or that a bonus lands in March, or that the dishonour in April was a bank error. It sees a file. The work below is about making the file say the true thing about you.

Six weeks is the useful horizon. Several of these items take real calendar time: a credit file correction, closing a facility, letting two clean statement cycles pass. Starting the week before you want to apply removes most of your options.

Credit file correction

Weeks, not days

Limit reduction

Usually quick

A clean statement run

Two cycles

Talking to a broker

No enquiry

You are entitled to a free copy of your credit report from each of the Australian credit reporting bodies. Get all of them. They do not hold identical information, and a listing that appears with one may not appear with another.

Australia runs comprehensive credit reporting, which means your file shows a good deal more than defaults. It carries repayment history information, a month-by-month record of whether each credit account was paid on time, for accounts held with participating credit providers. That monthly grid is often the first thing an assessor looks at.

Credit reporting body

The organisation that holds your file. Australia has more than one, and they do not all hold the same information about you.

Credit enquiry

A record that you applied for credit. It is created by an application to a lender, not by looking at your own report.

Default

A listing that a payment was overdue beyond a set period and the required notices were given before it was recorded.

Serious credit infringement

A listing made where a provider believes a borrower has evaded their obligations. It is held on file for longer than an ordinary default.

What to check, line by line:

• Defaults or judgments you do not recognise, or that relate to a debt you have already paid.
• Accounts showing as open that you believed were closed, including old cards and telco or utility accounts.
• Repayment history markers on accounts you thought were paid on time. Direct debits that landed a day late are a common cause.
• Credit enquiries you did not make, or a cluster of enquiries from applications you started and abandoned.
• Identity details that do not match your documents: a former address, a misspelled name, an old employer.

If something is wrong, you can ask the credit reporting body or the credit provider to correct it, free of charge, and they are required to investigate. Allow weeks rather than days. If it is not resolved to your satisfaction, AFCA can consider a complaint about a credit provider's listing.

One thing not to do: pay a credit-repair firm to remove a listing that is accurate. An accurate default cannot be bought off a file, and it drops off on its own statutory timetable. WeL’nd is not a credit-repair service, and this is the same answer you would get from us if you rang and asked.

Lenders ask for three to six months of statements on your main transaction account, and for self-employed applicants, on the business trading account as well. Assume every line is read. Increasingly it is read by a system that categorises transactions automatically before a human ever sees the file.

What an assessor is looking for:

• Income landing consistently, from the source your payslips or financial statements describe.
• Dishonours, overdrawn days and late fees. A single dishonour is a question. A pattern is an answer.
• Buy-now-pay-later instalments, which are treated as a commitment and, at some lenders, as a signal about how cash flow is managed.
• Gambling activity. Occasional small amounts are usually noted and passed over. Regular activity, or amounts that scale with income, is treated as a serious risk factor at most lenders.
• Transfers to accounts the lender cannot see, which raise the obvious question about what is being serviced there.
• Loan repayments that do not appear anywhere on the credit file, including private and family arrangements.

Two clean statement cycles change the picture more than almost anything else you can achieve in six weeks. It is a concrete target: no dishonours, no overdrawn days, income in, commitments out, and nothing on the page that requires an explanation.

Lenders assess your declared living expenses against a benchmark measure and generally use the higher of the two. Understating your expenses does not help you. It produces a number the statements contradict, and once one figure on the form is contradicted the assessor stops trusting the rest of it.

Work through three months of statements and build the real figure by category: groceries, utilities, transport, insurance, school fees, childcare, medical, subscriptions, and everything discretionary. If the total is uncomfortable, that is useful information a month before you apply rather than a week after you are declined.

Where an expense is genuinely about to stop, say so and evidence it. Childcare ending, or rent ceasing because you are buying the home you currently live in, are both things a lender will consider. They will not assume either of them on your behalf.

If you are self-employed and your most recent financial statements are more than a year old, your accountant is the first call to make. Lenders ask how current the figures are, and an accountant who is three months away from finalising last year's return changes what is available to you today.

1. 01Do not apply to several lenders at once to see who says yes. Every application leaves an enquiry on your credit file, and a cluster of them reads as distress.
2. 02Do not take on new credit in the lead-up. A car loan signed four weeks before a home loan application reduces the amount available for the home loan by considerably more than the car cost.
3. 03Do not change jobs mid-application if you can avoid it. Probation is a common cause of a reduced or declined approval, and lenders will ask.
4. 04Do not move large sums between accounts without a clear explanation. Unexplained deposits attract questions about undisclosed borrowing and about the source of funds.
5. 05Do not stop paying an ATO payment plan on the assumption a refinance will absorb it. A plan in default changes the ATO's posture and can change what a lender is willing to do.
6. 06Do not guess a number on the application. If you do not know it, go and find it.