As home loan rates begin to ease, overextended borrowers will be able to breathe a sigh of relief. Rates will be reduced not only on home loans but also car loans, personal loans and credit cards…making it easier for families to stay afloat.

While 2011 had brought 2 interest rate reductions only towards the end of the year – it was enough to make a difference to many families carrying significant levels of debts. Borrowers have been on a look out for debt consolidation opportunities with many looking for a well priced fixed rate mortgage which allows them to consolidate unsecured debts in to the loan.

Further reductions to interest rates should bring further mortgage stress relief which is very much in demand.

A Senate committee gave its support to the government’s draft plan to upgrade Australia’s credit reporting legislation and processes, prompting Veda adviser Matthew Strassberg to ask for a quick turnaround.

“Two years ago, the Minister for Privacy Brendan O’Connor announced a timetable to ensure passage of credit reporting reforms by mid-2012. We support that timetable,” he said said in a statement.

In view of the growing uncertainty on financial markets and the possibility of another global recession this legislation needs to be given priority.

Mr Strassberg said there were a number of gaps in today’s credit reports that have to be addressed as a matter of urgency. One such gap is the lack on info on the report as to the borrowers true credit limit on all their credit facilities and loans such a personal loans, home loans, car loans and credit cards.

Allowing credit agencies to obtain that type of information could only benefit consumers, he said, because companies would then have a clearer idea of the customer’s financial standing and their ability to pay their debts.

It was a view backed up by the Senate’s Finance and Public Administration Legislation Committee, which handed in its report on the government’s credit reporting draft today.

It would also change the regime from negative, where agencies mostly accessed bad information such as defaults, to positive.

This would offer a more comprehensive picture of the credit position of a borrower.

Borrowers with a history of bad credit as a result of bankruptcy, part 9 debt agreement, property repossession, etc. – ie borrowers who acknowledge that the bad credit was due to some even in their life and the report truly reflects this – will not be able to clean their credit history simply by making a request to do so.

Credit repair is only possible where for some reason the applicant believes that the bad credit is:

- a case of mistaken identity;

- the bill was already paid at the time that the default was lodged and it was lodged in error;

- applicant was never notified that the bill was due, etc.

Credit repair is not an option where you acknowledge the debt and believe that it was placed on the report correctly but would simply like to have the default removed.

Based on RFi’s latest quarterly mortgages monitor report, 26 per cent of Australians with home loans have admitted to struggling  with their repayments.- this is the highest percentage of people in financial trouble in Australia on record.

Even though the same survey was conducted throughout GFC – the number of people in financial trouble had never reached such proportions.

High interest rates, higher costs of living and more difficult borrowing conditions have all contributed to the current situation.

While in the past people could try and access the equity in their home to cover some of their unforeseen costs – this option is much harder to implement today given the new lending regulations under the National Credit Code.

Unfortunately the workings of you credit history is not something that is covered in school or in college (unless your profile is finance). Therefore many people go though life knowing nothing about it – until they hit a snag such a illness, loss of job or divorce.

Despite the low profile of credit reporting up to 14 per cent of people surveyed by Veda Advantage (credit reporting agency) had an overdue bill in the past three months – something that could leave a black mark on their credit file if the debt remained unpaid for more than 60 days.

Mortgage Brokers are also concerned that many clients have no idea what is on their credit file, even though information such as bill defaults or applications for other debt could be enough reason for them to be denied a home loan.

Younger Borrowers especially are oblivious to what appears on their report.

The head of external relations at Veda Advantage (which holds credit files on more than 14.5 million Australians), Chris Gration, says the state of your file can affect not just your ability to get a home loan but even something as basic as having the internet connected.

People should make it a habit to check their credit file annually – something you can do at no cost, Gration says. They should also review their file at least 30 days before making any credit application.

Just 4 per cent of those in the Galaxy survey had requested a copy of their file in the past 12 months.

”By obtaining a copy of your personal credit file you’ll know what financial institutions and other credit providers are looking at,” Gration says. ”That way you can be ready to answer any questions that might arise from your credit file.”

He says checking your credit file will also alert you to any mistakes or to fraudulent activity in your name.

Unfortunately many people are struggling and can not stay up to date with their credit card obligations.

Mr Smith’s comments on ABC television follow Westpac chief Gail Kelly who, earlier last week, acknowledged a rise in consumer arrears, but said it was not at a level to cause the bank a loss.

Generally poor credit quality is a feature of high unemployment times in Australia. Whereas today unemployment levels are quite low.

He said it now appeared to be seasonally related, noting “a little bit” of a situation where people were going on holidays and not repaying the monthly debt on their credit cards.

“But I think that interest rates are beginning to hurt a little bit now, so the recent rises are beginning to bite,” he said, adding that the Queensland floods had contributed to the issue.

He also made clear his view that credit growth going forward is unlikely to reach the levels seen before the Global Financial Crisis.

He said both corporate and consumer credit growth had slowed because people were more cautious while others were trying to boost savings.

Mr Smith expects that the Aussie dollar will continue to rise.

A large number of borrowers are uneducated about what information appears on their credit file, how to access their credit file and how to read it. Mortgage Choice spokesperson Kristy Sheppard said borrowers may not know that missed bill payments and previous loan or credit card applications will be reflected in their credit file and may affect their ability to borrow.

There is a general lack of knowledge about the existence of individual credit files and that even minor events such s a lost bill, or late payment, are often enough reason for someone to be denied a home loan.

Borrowers also do not understand that many loan applications are enough to disqualify someone from approval – you do not actually  need to be holding the loan.

Bad credit records will stay on you credit file for up to 7 years even if they are paid and will affect your ability to borrow.

Government should be doing more to educate borrowers as well as the general population of the possible financial impact on their life from a single unpaid bill.

As of December 2010,  Aussies have racked up almost $50 billion in credit card debt. Many families are now experiencing the Christmas spending hangover….and it can be quite unpleasant.

Out of control credit cards often lead to defaults and bad credit. If all you repay is the minimum set amount, before you know it your debts will spiral to balances you will not be able to pay out. Next comes the payment of interest on interest and so on.

New research from Citibank Australia shows as a nation we are getting better at repaying our credit cards in full. Many Australian understand that one should not put any purchase on a credit card which one can not afford to fully repay by the end of the month. Credit Cards should be used in such a way that they offer the convenience of paying when you do not have cash handy, but they should not incur any interest. Ideally credit card balances should be repaid during the interest free period.

Statistics suggest that 59 per cent of people said they paid off their credit card in full each month, whereas three years ago it was only 40 per cent.

Last year 9 per cent of people said they paid the bare minimum each month, whereas three years ago 17 per cent of card users paid the minimum.

Citibank research also confirmed that women have more problems with managing credit card debt than men.

Whereas only 4 per cent of high-income households pay the minimum each month, 16 per cent of low-income households those earning less than a combined $50,000 a year do likewise.

If you can qualify for a low rate personal loan then it may make sense to consolidate credit cards and store cards into a personal loan. However the best and cheapest form of debt consolidation is into your mortgage. Adding unsecured debt to your mortgage allows you to significantly reduce your monthly repayments by having your unsecured debts incur secured level of interest – which is significantly cheaper than the rate on your credit cards.

Adding a credit card balance of $10,000 to your mortgage can make it cost you $20,000 plus in the long run, however by keeping the credit card where it is you can potentially pay a lot more than that to your credit card company.

A growing number of people, however, are switching to cards that offer interest-free honeymoon periods for debts transferred over from rival credit cards. These cards also offer a good debt consolidation alternative if used correctly.

It is important that you make every effort to:

- Payout the full balance transfer amount before the end of the transfer period.

- Don’t make extra purchases on the card thinking you will only pay the balance transfer interest rate, as this is not the case.

- Remember, in most cases repayments go towards the balance transfer first before being applied to any additional purchases.

- At the end of the balance transfer period, consider closing the card and moving your other debt to a low interest card.

- Do not hold too many cards if you can help it as many credit cards incur an annual fee. The more cards you have, the more you pay.

- You don’t have to have your credit card with the same provider you have your everyday account with. Shop around.

Even arrears on low doc mortgages, loans which are normally perceived to be very risky, also came in lower than in past months.

Subprime arrears fell by 72 basis points to 11.93 per cent in November 2010, compared with the level in October – taking the total subprime outstanding balances in November to below $2.2 billion.

But while arrears reached a new low in 2010, Standard & poor’s credit analyst Vera Chaplin said she expects to see home loan defaults increase during 2011 due to higher interest rates and the impact from Christmas spending.

Once you do qualify for the status of ‘home owner’ , with the prestige come the thousands of dollars a month obligations to your home loan lender. If you have any history of bad credit, your home loan rate can be easily in the double digits, making getting ahead in your mortgage seem like an impossibility.

Being a home owner certainly over time does offer you the kind of financial freedom that few investments can match.

Reducing your home loan quickly does more than just save you tens of thousands of dollars in interest costs over the life of your loan, it offers you a peace of mind and a buffer of funds that you could draw upon in the event of a rainy day.

While most home owners understand the importance of giving your home loan a good ’spring clean’ once in a while, many would rather clean the oven or mow the lawn than review their financial situation.

But whether or not you do review your home loan, there are plenty of ways to speed up its disappearing act.

Start out with small savings.

Small savings every day add up to huge benefits. For example, a couple who stop spending $10 each a day on lunches at work will save $5000 a year – which equates to $133,000 in interest and nine years off the life of a 25-year, $250,000 loan. Write a list of everything you spend each week and look for small savings to make.

Automate your monthly repayments and increase their frequency if possible.

Ask your bank or credit union to deduct extra repayments every month, and you won’t notice the money. Many people maintained their old repayment levels when interest rates fell sharply in 2008, but now that they’re heading back to their 2007 levels it could be time to increase your automatic payments.

Take the time to look for a better mortgage deal.

Shop around for a better deal with other lenders. Then confront your bank and ask them to match it. You have nothing to lose by using this Jedi mind trick they only need to think that you’re considering a switch.