Tag Archives: Cashflow

How ‘Buy Now Pay Later’ affects your credit score

By Robert Wright /November 23,2021/

In recent years, ‘buy now pay later’ (BNPL) has become an increasingly popular method for consumers looking to purchase goods via instalments without resorting to credit cards.

These services are often billed as a safer and more convenient way for consumers to manage their spending, and their popularity has led them to become widely available.

But if you miss a payment or misunderstand the particular terms you’re agreeing to, BNPL has the potential to dent your credit score and impact your lending ability down the track.

What is BNPL?

The BNPL market is growing exponentially. Valued at $43 billion, this sector has tripled over the previous two financial years, according to the Reserve Bank of Australia.

BNPL schemes allow consumers to buy goods and services from a retailer by only paying a fraction of the price at the time of the transaction and the rest of the payments in instalments. This convenient payment method offers interest-free payments to consumers and is currently attracting considerable attention.  However, if you miss payments, you could be in trouble.

In the 2018-19 financial year, the total revenue from missed payments from all BNPL providers totalled over $43 million, a 38 per cent increase from the previous financial year.

Many people, especially younger consumers, have a general understanding of what a credit score is and that a bad credit score, or rating, can affect their ability to secure loans or lines of credit.

What they may not realise is that almost every transaction they make has the potential to impact their credit score – whether it is paying a utility bill late, carrying a lot of ‘contract debt’ by upgrading your phone every year on a plan, regularly overdrawing your bank account and using overdraft, or having multiple credit cards and only paying the minimum monthly fee.

All of these factors are taken into consideration to give a picture of your spending habits and determine whether you are a desirable candidate to lend money to. So, while it may not seem like a big deal if you pay your electricity bill a few days late, or you’ve signed up to a five year plan to pay off the latest iPhone, or regularly using BNPL services to pay for things, these actions may be chipping away at your credit rating which could cause issues when it comes to seeking a home loan down the track.

Improving your credit score

The first step is to go online and check your credit report. This is generally a free process, and everyone is entitled to one get a credit report once a year. Ensure all your personal details and queries on your credit history are correct. However, beware of any credit repair companies that claim to improve your credit score. This is simply ineffective and a rip-off.

Here are some steps to help you improve your credit score and make yourself a more desirable loan candidate if you expect to be applying for a home loan in the near future.

• Resist the lure of BNPL and other easy spending

To avoid additional scrutiny of your personal spending habits, it may be better to close your BNPL accounts and focus on only purchasing things you can pay for in full. Resist the urge to upgrade your phone unnecessarily so you can pay out your existing plan.

• Limit the amount of credit applications

In the year leading up to your mortgage application, be cautious of applying for credit. It is advised to wait until after your loan has settled to then apply for credit and take advantage of interest-free loans.

• Close any unused credit cards

If you have any unused credit cards, it is advisable to close them to increase your borrowing capacity. When assessing your loan application, a lender will often assume all credit limits are fully drawn and will count the minimum payment as an expense. This may be the difference between getting the loan or not.

• Demonstrate stability in employment and residency

Staying in the same workplace and household for at least six months is key to obtaining a home loan. Banks like to see stability, and moving jobs or houses can compromise getting a loan approved.

Source: Money & Life

Spring clean your credit rating

By Robert Wright /November 23,2021/

Is your credit rating looking a little worse for wear? Here are our tips to help you get it back into shape ahead of your next big purchase.

What is a credit score?

Lenders use your credit score to work out how reliable you’re going to be as a borrower. Whether it’s for a home loan, personal loan or credit card, having a good credit score means lenders will be more likely to lend you money. A poor credit score will make it harder for you to borrow money, as lenders might view you as a higher risk. You may even have to pay a higher rate of interest than someone with a good credit score.

How can I check my credit score?

Your credit score is found in your credit report, which is held on file by credit reporting agencies. You’re entitled to a free copy of your credit report once every three months. You can get it from these three credit reporting agencies:

• Experian
• illion (formerly Dun & Bradstreet)
• Equifax

Each agency calculates your score slightly differently, and may hold different information about you, so it’s worth checking with each.

How is my credit score calculated?

Your credit score is based on your personal financial information, which is collected from lenders, service providers and public records. Things that can influence your score include:

• how much you owe and the type of borrowings
• how many credit applications you make
• whether you make repayments on time
• whether you’ve defaulted on any debts in the last 5-7 years
• any bankruptcies, court judgments or personal insolvency agreements in your name.

From 1 July 2021, comprehensive credit reporting (CCR) became mandatory for the major lenders, requiring them to provide more detailed information about your financial history, such as:

• any credit products you’ve held in the last two years
• your usual repayment amount
• how often you make repayments and whether you pay on time.

From 1 July 2022, lenders will be required to also provide financial hardship information. The CCR scheme aims to give lenders a more accurate picture of your capacity and ability to repay credit.

Great, so how can I improve my credit score?

Finding out that you have a low credit score can be worrying. Fortunately, there are steps you can take to improve your credit score and keep it high:

1. Pay your bills on time

Always pay bills like utilities, rent, mortgage, tv, internet and phone services on time, especially if the bill is worth more than $150. If a bill costs over $150 and is at least 60 days overdue, a default can be listed on your report, which remains there for five years.

• Pay credit card, loan and other debt repayments on time

Making debt repayments on time and in full shows lenders that you can be trusted to meet your obligations. Having a good repayment history can even help boost your credit score, for example, paying off your credit card in full each month.

• Limit how many credit applications you make

Every time you apply for credit, such as a new loan, credit or store card, the application is listed on your credit report. Making lots of applications in a short space of time may affect your score, as it looks like you’re in credit distress. Only apply for credit if you genuinely need it.

• Pay off your debts

It’s generally the case that the less debt you’re carrying, the better your borrowing capacity is. So pay off your personal loans, close credit and store cards that you’re not using and reduce the limits on any other credit cards you hold.

• Fix errors on your report

Finally, it’s worth checking your full credit report carefully to make sure that it’s accurate. From time to time, incorrect information can be added to your report, which can negatively impact your credit score. If you do notice an error on your report, contact the credit provider and/or credit reporting agency and ask them to amend your report. Avoid using a third party ‘credit repair’ company to clean up your report, as they are only doing what you can do yourself for free.

By taking these simple steps, you can expect to see your credit rating improve gradually, over time. However, if you’re having trouble paying your bills on time, struggling to manage debt or having other financial difficulties, seek help from a financial counsellor as soon as possible.

Source: Money & Life

Retirees: How to beat Inflation before it beats you

By Robert Wright /November 17,2021/

Investors with long memories – or a good education – will recall the bad old days when inflation was the economic bogeyman. It broke Germany’s Weimar Republic in the 1930s and nearly cratered America’s economy in the 1970s.

Fortunately, inflation has been a non-issue in Western economies for decades. But is that about to change? In the first quarter of FY2021, Australian inflation ran at a comfortable 1.1%. By the second quarter it had leaped to 3.8%.

Perpetual’s recent Quarterly Update summed up the problem: “With very easy monetary policy likely to continue for the next couple of years, and government spending at record-breaking levels, there remains the risk that inflation could become out-of-control. Historically, high levels of inflation have been very difficult to contain once in place.”

Inflation hurts retirees

Inflation is bad news for retirees. “A continual rise in the price of goods and services can really affect someone who’s retired or approaching retirement”, says Malissa Tobias, a Perpetual Private adviser in Melbourne. “Inflation eats your purchasing power – you get fewer goods and services for the same amount of money.”

If you’re still working, your salary can rise to keep pace with inflation. Retirees – especially those with money in low-rate assets like term deposits or cash – suffer because their spending power is cut and the real (after-inflation) value of their capital is falling.

Anti-inflation strategies for retirees and near-retirees

Manage your retirement

By managing the timing and shape of your retirement you can offset some of the inflation threat.

If you work a little longer (either full or part-time) you can earn an income that might go up with inflation. Those extra earning years also give you more time and money to build up the largest possible nest egg to generate your retirement income. Finally, but just as importantly, retiring later delays the day you start drawing on your capital.

Invest in inflation-beating assets

Investing in higher-returning assets – like shares or property – can deliver the same benefits as earning work-income because their value can rise in line with, or above, the rate of inflation. However, the inevitable complication is that higher returning assets are usually higher risk assets.

Plan your spending

Knowing how much money you’re going to need in retirement is a crucial part of retirement planning.

Draw on capital

The recent Retirement Income Review suggested many retirees die with their capital intact. But that’s not the case for everyone. In a world where the threat of inflation is rising, some retirees will need to dip into their capital to fund the retirement lifestyle they want. The key is to do that prudently.

Source: Perpetual

Money worries and your mental health

By Robert Wright /September 08,2021/

It’s been a trying time for many people, with our collective mental health taking a toll as the COVID-19 pandemic rolls on. The Melbourne Institute says one-in-three Australians are now reporting financial stress, while one-in-five are feeling ‘mental distress’.

It’s well known that our financial wellbeing and mental health go hand in hand. Severe or prolonged financial stress can trigger symptoms of anxiety and depression, relationship breakdowns, trouble sleeping and anti-social behaviour. This in turn can lead to further poor decision making when it comes to money.

Fortunately, there are things you can do to improve your financial security and wellbeing. If you’re experiencing financial stress, here are some practical steps you can take to get back on track.

Give yourself a financial health check

When you’re experiencing financial stress or hardship, it can be tempting to avoid the problem altogether; but this only makes things worse. Once you gain a clear understanding of your financial position, you’ll feel more in control and can take steps to improve your position.

Start by doing a financial health check to assess where your income is going. Use a spreadsheet or budget planner to list your income, debts, and expenses. Then look for opportunities to reduce your expenses, pay down debt and increase your savings.

Renegotiate your bills

Renegotiating what you owe is a smart way to free up some cash flow for daily living and ease the pressure you feel about meeting your obligations.

If you’re having a hard time meeting expenses, it’s important to speak to your service providers as soon as possible. Let them know you’re doing it tough and ask to negotiate lower repayment amounts and extended timeframes.

Don’t be shy to ask for a better deal on any services you use, including phone bills, internet, and utilities. Most organisations will try to work with you – it’s better for them to get paid (albeit slowly) than for you to default on what you owe them.

Pay down debt

With more cash flow available, you can concentrate on clearing your debts, a key step on the path to financial freedom. If you have lots of debt, it’s worth seeking the advice of a financial adviser. They can advise you on the most efficient and cost-effective way to repay what you owe. You might be able to refinance, take advantage of ‘no-interest’ periods or consolidate your debts into a single monthly repayment at a lower rate.

Make bank accounts your best friend

Keeping all your money in one bank account makes it hard to keep track of how much you have and how much you owe. One simple strategy to help you manage your money is to set up several bank accounts, each with a different purpose. For example, one to receive your income, another to pay household expenses, one for discretionary ‘spending’ and one for saving.

You can set up automatic payments to transfer the right amount of money into each account when you get paid. That way, you’ll always have the money put aside to pay your bills as they arise. Make sure to set up direct debits or automatic payments for each of your regular household bills from your expense account, so there’s no chance of falling behind in future.

Build your savings

Feeling financially secure goes hand in hand with having a good financial safety net in place. The more you have put aside for a rainy day, the less stressed you’ll feel when things don’t go to plan. Aim to build up your emergency fund to cover six-months’ worth of living expenses for yourself and your family. Again, creating an automatic transfer of funds to your ‘emergency’ savings account each month is an easy option. Then sit back and watch your savings grow.

Where to get help

If you’re experiencing financial hardship, struggling to make ends meet, or find yourself on the wrong end of one too many late payment notices, remember, there is help available.

Source: Money and Life