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Know your credit score - the negative effect of bad credit
Tuesday, October 10, 2017

If you haven't applied for a home loan or dealt with Mortgage Broker you probably wouldn't know what your credit score is or more importantly what can cause a negative rating on your credit reports.

Here’s a snapshot of what a report is, and how negative listings can affect your ability to obtain credit.

The image on the left is the front page of a Equifax (previously Veda) report.  You can see that there is a score on the report, running from -200 to 1200, red being bad, and green being good.

The score in the example below shows that this person only has a score of 365, which isn’t good.  A score needs to be around 600 or more for the score to be considered good (subject to bank’s credit criteria and other factors).

You can obtain a copy of your credit report from either Equifax or Dun & Bradstreet.  Both credit reporting agencies offer a free copy as well.  If you need us to go through the report with you to understand it, we are more than happy to do so.  Go to (Veda) or (Dun & Bradstreet) to obtain free copies of your report. 

So as above, we can see that where someone has a bad score, this can have a negative effect on their ability to obtain finance (subject to Lender criteria and other conditions).

Another area on your credit report that can have a negative impact on your credit score is the new accounts and repayments sections in the report that have been included due to the changes in The Credit Reporting Industry, which came into play in 2014.

Due to the changes in The Credit Reporting Industry, our credit reports now contain positive and negative information pertaining to our credit history (basically we moved from a UK based system to a US system).

These changes mean, among other things, that new information is now going to be listed on our credit reports (subject to the lenders reporting said information).

The snapshot below shows how our loans can now be listed on our credit reports, along with whether or not we have paid on time EVERY SINGLE TIME:

We are yet to see the impact on people’s ability to obtain finance as this section is new to our reports, but it will start to have new effects on our credit reports once the system is fully up and running.

For example, if you in the last 12 months had 6 months late repayments on a loan, this could be reflected on your report, and could have a negative effect on your ability to obtain the best interest rates on a new loan application.  Of course, this is all theoretical at this stage, but we will see changes in our reports, and there will be new issues that we will need to tackle moving forward.

We will only start to see the negative impact on the new credit reporting laws in the coming months, as Lenders start recording this monthly repayment information on our reports.

It is also important to remember to go to your trusted finance broker and don’t just apply online for loans. 

This can also have a negative effect on your credit rating.  Having a mortgage broker is a necessity for shopping around for the right loan, whether it’s a home loan or a small personal loan. If you enquire yourself too many times, even if it’s just on the internet or over the phone, you will start getting knocked back for having too many enquiries.

As a mortgage broker we can help you find the right loan for you without completing unnecessary applications or enquiries and with the assistance of Credit Fix Solutions we are here to help you overcome any negative listings on your credit report.

Our first advice is that it's better to be proactive than reactive! So pay your bills on time by setting up Direct Debits, make sure your income is going into your account, and you will prevent any missed repayments having a negative effect on your credit report.

Here at CIGA we are happy to offer free consultations on any credit report enquiries.

If you are aware of an issue on your file we recommend you contact Credit Fix Solutions on  1300 43 65 69 where Victoria Costa and her friendly team are able to help you overcome any negative listings

Karen Fowles 

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The holiday home romance
Monday, September 14, 2015

We all know the feeling. The sun is shining, the waves are lapping peacefully on the shore, there’ s a cool ocean breeze wafting gently through your hair and the crisp sand is etched between your toes.

We all know the feeling. The sun is shining, the waves are lapping peacefully on the shore, there’ s a cool ocean breeze wafting gently through your hair and the crisp sand is etched between your toes.

Sometimes you wish your holiday romance could last forever. Technically it could!

Hundreds of thousands of Australians own their holiday getaways. With the temptation to escape the daily grind, a holiday home can be a very rewarding purchase.

But do holiday homes make a good investment?

When it comes to investing in property, it’ s easy to let your emotions rule. However, before you make any snap decisions you should consider the benefits and risks associated with this kind of purchase.

The benefits

  • Free accommodation when you go on holidays.
  • You will have a home-away-from-home with unlimited access (depending on tenancy arrangements).
  • You can rent your holiday home out for the portion of the year that you don’ t intend on staying there to help mitigate some of the costs. This can be particularly beneficial during peak seasons.
  • Your holiday home may increase in value over time. The potential for capital growth on property investments is generally higher than that of cash and fixed interest investments.
  • You can claim a tax deduction for expenses incurred in maintaining your holiday home for the period of time it is rented out.

The risks

  • Occupancy rates fluctuate. Strong demand for holiday homes is on average around 8 to 10 weeks per year – and this is dependent on location. Demand for homes in a warmer climate is more consistent (especially if it’s beachfront).
  • If you rely on income from peak holiday seasons you won’ t be able to use your holiday home during these times, e.g. during school holidays.
  • You may need to take on a significant mortgage as holiday homes can be quite expensive.
  • On top of the initial purchase price you will also need to consider the costs of maintaining the property, including management fees.
  • Any rental income or capital gain that you realise upon redemption of your holiday home will be added to your assessable income and taxed at your marginal rate in that financial year.
  • If there is a property market downturn, holiday areas are generally the first to suffer and the last to recover. If you have chosen an area, do thorough research on past cycles and how they have affected local prices.
  • You might get bored visiting the same place over and over. On top of this, you may even feel guilty if you holiday somewhere else!

Investing in any type of property is a big decision. When considering purchasing a holiday home, you should try and think a little less with your heart and a little more with your head.

Seek professional guidance from your financial planner before making any big decisions to see how owning a holiday home may fit into your longer term objectives.

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Simple ways on how to get your finances back on track
Thursday, July 23, 2015

As a financial adviser I often get asked this question (and in fact it’s high on the agenda for most people): how do I get my finances back on track?

As a financial adviser I often get asked this question (and in fact it’s high on the agenda for most people): how do I get my finances back on track?

Make your money work harder!
With the ever increasing costs of daily living i.e. bills, food, rent or mortgage, kids’ education, sporting activities, car loans, personal loans, etc. etc. it’s not surprising that most people are finding it hard to get ahead financially.

We often find ourselves tempted to live “beyond our means” by taking on a personal loan for that overseas trip, furnishing the house, or buying that expensive car we just “had to have” (on borrowed money). Sometimes we’re forced into situations beyond our control due to a change in personal circumstances (i.e. job loss) or even a family emergency resulting in over using the credit card to get you out of the situation today. Unfortunately, this creates financial issues for tomorrow.
So here are some simple tips on how to get your finances back on track:

1 Establish where you are today

As laborious as it might sound (and no matter how disheartening you think it will make you feel), you need to know how you are tracking financially. Most of us would have a reasonably good idea, but by going through the exercise of creating a personal or family budget you’ll be able to see a clear picture of how much you’re earning versus how much you’re spending. You can download a free budget planner here
Having a realistic budget can help you understand where your money is really going, and most importantly give you a good platform from where to begin.

2 Plug the ‘leaks’

Look at the areas where you could be saving money and take action. Even taking your food to work instead of buying lunches could save you up to $30-$40 per week, and dare I say it: giving up that coffee each day can make a difference of $20 – $25 per week (I can just picture all you coffee aficionados cringing!). Ok, so maybe you’re not willing to give up that coffee, however these simple measures (as “drastic” as they may seem) could save you between $2,600 to just under $3,500 a year!!!  – could you do with that extra money? Now here’s something to really think about: imagine if BOTH of you got on board and took action! Yes, that could be a grand total of $5,200 to almost $7,000 a year – does that make sense now?  Do the numbers and work out what’s best for you.

3 Have a realistic goal and commit to it

Conquering your finances goes beyond having a comprehensive budget in place (Step 1). You need to have a goal and the relentless drive to accomplish it (elite athletes will relate this!). It’s no different to wanting to lose those extra kilos or wanting to partake in this year’s City to Surf (or the Gold Coast Marathon if you live up this way), only dedication and commitment will get you there. So whether it’s paying off your mortgage, buying an investment property or putting money aside to secure your future, write down your goal(s) and give it a realistic timeframe.

4 Start by eliminating high interest personal loans and credit card debt

Personal loans, credit cards and car finance loans usually have a much higher interest rate than a standard variable home loan. Even a 0% store card (used to entice people into buying a new TV, computer or furniture) can quickly get out of hand if the full amount isn’t repaid on or before the due date, often reverting to a ‘sky high’ interest rate. Tackle them one at a time, and start by repaying the debt with the highest interest rate first.

5 Consolidate costly personal debt into an easy to manage monthly repayment

Talk to an independent & experienced finance specialist to help you with this. Banks are limited in this way and don’t always have your best interests in mind as they only have one product to offer you – theirs! If you’re looking for advice or someone to talk to in this area, I have used and often recommend Karen Fowles from Integrated Finance Strategies to all our clients:

6 If your budget’s in surplus, make extra repayments on your home loan

Did you know that the interest you pay on your home loan could be as much as 1.5 x times the original loan amount over the life of the loan? For example, if your mortgage is $400,000 and you have a 25 year loan, the amount of interest (av. 6%) you will pay is a staggering $600,000! You then have to add the original principle amount of $400,000 and you will have repaid $1 Million over that 25 year period. Did you know that by paying an extra $500 per month off your home loan (in the same example above) could see you paying it off sooner by almost 8 years? You’d also be saving over $125,000 in interest – that’s a lot of money to be leaving on the table. Becoming debt free is only a pipeline dream for some but it doesn’t have to be that way if you take action and get started straight away.

7 Always have a plan ‘B’ for life’s uncertainties

Building up cash reserves can be the best way to safeguard against emergency situations or hard times. You can complement this strategy by also having adequate insurances in place to help protect your biggest asset: YOU! (and your ability to earn income). An insurance broker once told me: if you had a money machine in your garage that produced $1,000 per week, every week of the year would you insure it? of course you would! I find it interesting that most people insure their cars (an object that depreciates in value over time) without thinking twice, yet they baulk at the idea of protecting themselves. [Click here] to find out more about personal protection.
Don’t underestimate the value of having contingencies in place such as insurance, you’ll certainly appreciate it if something unforeseen happened and you had the financial windfall to protect everything you’ve worked hard for.

8 Get in the habit of saving for now AND the future

We all need to face up to the fact that one day we’ll be retired. What sort of lifestyle will we be able to enjoy when the income stops? The bills won’t stop coming, and as Generation X’ers it’s questionable whether we would even be able to fall back on the old age pension. As our treasurer Joe Hockey once famously said: “the age of Entitlement is over”

So it’s really up to us to find a ways to make our money work harder and to put money aside to provide for our needs in the future, and getting your finances in order should be your first priority. It might be hard in the beginning, but you’ll feel better once you get started.

Ps. If you feel you need a little help, or you want more advanced strategies to help get you there sooner, talk to us (in confidence). Elite athletes and successful people know the real value in having mentors that help them develop the skills & strategies to succeed – they could never have done it on their own!

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Teach your Kids about money early
Wednesday, July 22, 2015

As parents with young children, you may have wondered how and when to start educating your kids about the value of money.

As parents with young children, you may have wondered how and when to start educating your kids about the value of money. At what age should you start? What should you teach them? How much pocket money? Should there be ‘strings’ attached like household chores or completing homework?

While the subject of pocket money may be personable, I’m sure you agree that we as parents want to give our kids the best financial start in life. Finance is not a subject taught at school, so its up to us to educate our kids about money in order to give them a good head start.

We can do this by first introducing them to money concepts from as early as 5, giving them plenty of time to understand and develop good money habits for when they’re older.

As a guide, young children should understand the value of saving and the consequences of spending. These fundamentals should be taught in the early years, as most research will tell you that kids develop learning & character habits from as young as 7 (and it’s the same with their money habits!).

Here are some money concepts for children under 6:

For Young children up to 6 years of age, the most important thing is to “learn patience” when it comes to buying things.

Admittedly, that can be difficult when you’re in the store with your child and they want something right there and then and they start throwing a tantrum! That should be the trigger to get started on this valuable lesson straight away. It’s a hard concept for people (regardless of age) to grasp, and even as adults, some people still don’t fully appreciate or understand the true value of “delayed gratification”. Young kids need to learn that if they really want something, they should wait until they have saved enough money to buy it (in other words, become good savers).

So here are some strategies to help get you started:

Show them examples of how waiting has its rewards: Explain to your kids that waiting for something has its rewards, like when they want you to buy them that $20 toy (and they only have $5). If they are receiving $5 pocket money per week, they’ll need to save for another 3 weeks to be able to buy it for themselves! Keep reminding them how good it will feel when they finally get it.
[Kids are smarter than we give them credit for: at age 5 my oldest daughter asked me if I could give her some money to make up the difference for a doll she really wanted, saying she would “pay me back” in a few weeks once she’d saved enough money! Umm, nice try but I’m not a bank and you don’t qualify for a loan, lol]

Teach them the values of Saving V’s Spending: start with two money boxes, one for “Savings” and another one for “Spending”. For every dollar they receive (whether it’s pocket money, birthday money or even from the tooth fairy), it should be split 2/3 into “Savings” and 1/3 into “Spending”. When you go shopping and they ask if you can buy them something that you haven’t budgeted for, let them buy it with their “spending” money (you might want to remind them to bring their spending money BEFORE you leave the house, as more often than not they tend to “forget” then end up asking you to buy it!). The “savings” money should be set aside for more expensive things they can buy in the longer term once they’ve saved enough to buy them.

Set some goals: you could start with something as simple as having a goal to buy a favourite book, clothing or toy (you know, the thing they just have to have!). It needs to be affordable and within reach, something they will be able to achieve in a short period of time [When I first introduced financial goal setting with my girls they really wanted a Burmese kitten each, but they were too expensive to have as their first goal as it would’ve taken them too long to save up, so make sure they aim for something achievable within a few weeks, not months or they’ll loose interest]. The idea is for them to have a target, and to develop a sense of focus. Once you have a goal, shopping should be a lot more easier (and fun), as all you have to do is remind them of what they are saving for!

Encouragement is so important at this tender age, so each time they save money (whether its going towards “savings” or “spending”) give them praise, and sit down with them in their room and help them count how much they have. Talk them through about how close they are to reaching their goal, and countdown the days…

Get your kids excited about saving, I’m sure they’ll love it, and it’ll make your life easier –  especially when it’s time to go shopping!

By the way, what’s the going rate for a front tooth from the tooth fairy these days?

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