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28.05.2008What to do when you have a poor credit record

These days people who have defaulted in the past shouldn't despair, for they now have an avenue to get a loan.


Credit Impairment

Phillip Lowe, then Assistant Governor of the RBA warned in a speech back in late-2006 that mortgage arrears were rising – despite a strong economy. “A lender that ignored this change…is likely to find that in the next economic downturn, default rates are much higher than was predicted,” said Lowe. Essentially this means that a whole new swathe of borrowers will have a black mark on their credit history following the next downturn, and will be faced with the trauma of trying to get a loan with a default on their record.

While having a default on your record isn’t exactly something to celebrate, with the increase in the number of specialist non-conforming lenders it’s certainly no longer something to get too depressed about either. “If someone had defaulted in the past it would have been very difficult for them to get a loan, and if they did get a loan it would have been at an exorbitant interest rate,” says Kendall Mahnken, Head of Operations at Liberty Financial, one of Australia’s leading non-conforming lenders. These days people who have defaulted in the past shouldn’t despair, for they now have an avenue to get a loan.

Bankrupts

John Empey, CEO of another leading non-conforming lender, Pepper Homeloans says that borrowers who have a poor credit history – including discharged bankrupts – can now get loans more easily via specialist lenders. “Lenders like Pepper Homeloans can assist borrowers who have a history of credit impairment, including those who have been declared bankrupt…however, their bankruptcy must have been discharged in order to obtain a loan,” he says.

Mahnken agrees that it is now far easier. “A person who has been bankrupt in the past may face some hurdles, however, we believe those hurdles should not be insurmountable, and you shouldn’t be scarred for life,” he says. What the lenders do is look at the reasons for bankruptcy – be it divorce, illness or loss of job – and the conduct of the borrower during bankruptcy proceedings. The secret is full disclosure by the applicant. “It is important that customers fully disclose any bankruptcy or credit defaults and their reasons to why they received them to a potential lender, as failure to do so can significantly hold up the process, or in some cases result in their application being declined,” says Mahnken.

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