How to: Use credit to your benefit as a first time buyer

Prospective first home buyers may want to consider using credit, and positive exposure to it, to give them a leg up, according to Smartline Personal Mortgage Advisers.

While they warn that if you cannot manage the responsibility then it’s best to avoid credit, disciplined new buyers may see themselves benefiting from the consideration.

In fact, Smartline executive director, Joe Sirianni, said that responsible management of debt is a positive in this age of bank credit scoring, but it should be handled carefully.

“Debt isn’t unlike fire. Managed correctly and carefully, it can be incredibly useful, but in the wrong hands there’s a good chance you could get burnt,” said Sirianni.

He said that while years ago it was suggested that you had a personal or car loan or credit card that you would pay off, as a form of ‘proof’ that you can handle money, this is no longer the case when it’s far less likely you know your local branch manager.

In the late-1980s, when banks moved to centralised decision making, the emphasis shifted to whether or not you had defaults. Sirianni notes that with more automated credit scoring on computers in recent years, a lack of a previous credit facility can count against you.

You want to be building a good track record.

“Computer programs are essentially doing what the humans used to do – making a value judgment on your past performance and assessing your character,” he said, explaining that leaving a blank field in relation to previous credit conduct could be a negative.

“However, having never borrowed and never made a mistake is still always better than having borrowed and made a mistake,” he said.

“But it’s not as good as having borrowed and having repaid it.”

He said that if you’re planning to take a few thousand dollars on a credit card or car loan, and are able to repay, then this would be a positive, even while excess unnecessary debt should be avoided.

“It might even be as little as a credit card with a $500 limit that you’ve kept in good order – that would be all you would need to do well on the credit score,” he said.