Credit Card ??

[BradW82]

Hi all ,
I do apologize as this isn't really a property question ....well its purpose is related
Hoping someone can shed some light on something .

I applied on line last night for a Bank West credit card and got a "knock back " and No explanation when I called them this morning .
I just want to know if you think its worth trying them again in person as someone once told me that the online applications can "play up" .

I now have a hit on my file which I dont need right now!!

Some of my info is :

Married , 2 kids , earn $110k between us , owe $120k on block of land (we will build on later) , just got valued at $174k , we have No other credit cards or loans and we pay $320 per week in rent . I have been with my current employer for 10+ years . My credit file is clean as I have a Veda subscription .

I just cant see the problem , Is there something I am missing here ??

Thank you ,

Brad

 

[Aaron_C]

Oh I'm not surprised. What limit were you going for? The automatic rejection is usually because of 'credit scoring'. The fact that you have a mortgage, pay rent, have 2 kids and are married play against you unfortunately!

I wouldn't worry too much about the hit on your credit file - just one hit which is explainable is fine.

 

[BradW82]

Thanks Aaron,

Do you think it is worth trying somewhere else that may have easier lending criteria ?

 

[tobe]

I wouldnt personally.

Whats the purpose of the card? If its long term debt you might be better topping up your land loan. if its short term use a debit card instead. If its a 'just in case', now might be time to have a good hard look at your budget so you can put aside 3 months living expenses.

Sorry if I sound harsh.

 

[Kinnon Bell]

I'm making general assumptions here...

Usually if you apply for lending on-line, particularly credit cards, it is scored a lot harsher than if you went into a branch. There are a few reasons for this, but mainly due to the fact there are a lot of fraudulent applications via on-line and it's a computer doing the assessment as opposed to branch/phone where it's a human and computer.

With credit cards because there can only be one 'owner' of the debt, it can't be a joint application. Only your financial position comes into play and it's looked at in the terms of worse case scenario. Usually, half assets, full liabilities (mortgage calculated at their in-house affordability rate), if you have existing banking it may be taken into consideration at half liability.

Looking at the figures...
Income - $55,000 (half of total house hold that you stated) ~$3565 per month net
Mortgage - $900 p/m calculated at affordability rate of 9%
Rent - $1386.67 per month (is your wife on the lease as well?)
General Living and Entertainment Expenses ~$2527.55 for couple with 2 dependants which is usually the default amount.
Liability of new card taken at 2.5% of limit (assuming $5000 limit) - $125.00

Technically you are in a negative position to the tune of approx $1,374.22 per month.

Do you have savings?

After making a lot of assumptions and doing this very quickly that would by my guess why the card was declined.

You need to be able to mitigate the negative budget deficit.

 

[BradW82]

Tobe ,

That is not harsh , just good advise thanks !

Kesse ,

Thanks for the reply . It makes sence .

I think as it is not over important I will just use savings and leave the credit card for now .

Thanks again guys ,

Brad

 

[Aaron_C]

Thanks Aaron,

Do you think it is worth trying somewhere else that may have easier lending criteria ?

I disagree with the others about not bothering with a credit card. Credit cards are great for purchasing goods and services because of 55 days interest free purchases, which allows you to conserve cash until the end of each statement. Plus, any money you spend on a credit card is the bank's money, not yours. So if there is fraud the bank is responsible for chasing the thieves/fraudsters up, not you. Big world of difference compared to a debit card. Of course the downside is it eats into your serviceability but a manageable credit card limit will not have such a big effect.

 

[Melbournian]

also points - if you always buying stuff - everything adds up. i even use it to pay my 10-20% payment on real estate purchases in the past although had to make 10-15 trips to swipe the card. AMEX is the best.

 

[rosehill]

Try HSBC. They are really good. You could do it on-line too but remember to add other income, like interest on savings and deposits in your application.

Good luck!

 

[Mick C]

I'm making general assumptions here...

Usually if you apply for lending on-line, particularly credit cards, it is scored a lot harsher than if you went into a branch. There are a few reasons for this, but mainly due to the fact there are a lot of fraudulent applications via on-line and it's a computer doing the assessment as opposed to branch/phone where it's a human and computer.

With credit cards because there can only be one 'owner' of the debt, it can't be a joint application. Only your financial position comes into play and it's looked at in the terms of worse case scenario. Usually, half assets, full liabilities (mortgage calculated at their in-house affordability rate), if you have existing banking it may be taken into consideration at half liability.

Looking at the figures...
Income - $55,000 (half of total house hold that you stated) ~$3565 per month net
Mortgage - $900 p/m calculated at affordability rate of 9%
Rent - $1386.67 per month (is your wife on the lease as well?)
General Living and Entertainment Expenses ~$2527.55 for couple with 2 dependants which is usually the default amount.
Liability of new card taken at 2.5% of limit (assuming $5000 limit) - $125.00

Technically you are in a negative position to the tune of approx $1,374.22 per month.

Do you have savings?

After making a lot of assumptions and doing this very quickly that would by my guess why the card was declined.

You need to be able to mitigate the negative budget deficit.

^^ Great post!

If you have a mortgage, the credit card it should be free + easier to apply with your current provider....

BUT before you do that, i be more concern for your future building loan...ifyou got rejected by a auto credit scoring system for a $20,000 credit limit...then it may not look good for your potential building loan- no matter how much the land goes up in value...


Something to think about and get sorted + plan ahead before it's to late.

Regards
Michael

 

[BMan]

i applied years ago for a credit card and got knocked back so applied again and got it...??
my mate also applied with worse conditions than i had and got his first go...?

also agree with Aaron C with 55 days interest free and auto pay setup along with fraud protection and a good way to keep track of purchases so there not mixed with all your other banking stuff why wouldnt you have a credit card unless it wont allow you to service a new loan

 

[tobe]

disagree about credit cards for points and the 55 days interest free.

just a scam to get more cash out of you.

finance psychology 101 says you will always be more tempted to pay more, buy more things with plastic, while at the same time telling yourself your definately one of those people who pay their credit card in full each and every month (even the month just after xmas). relativity bias tells you the couple of times you didnt pay in full were for special reasons, and besides you earned all those points anyway, so it was completely justified......

 

[kathryn d]

disagree about credit cards for points and the 55 days interest free.

just a scam to get more cash out of you.

finance psychology 101 says you will always be more tempted to pay more, buy more things with plastic, while at the same time telling yourself your definately one of those people who pay their credit card in full each and every month (even the month just after xmas). relativity bias tells you the couple of times you didnt pay in full were for special reasons, and besides you earned all those points anyway, so it was completely justified......

We buy a minimum of $22k a year on heating oil for our properties.
We receive air miles on the purchase, but starting next heating season (Sept) I will be using the credit card to earn even more points.
They are free (no annual card fee) ..so why not. It's $360 in grocery store gift cards..but that's almost a year supply for me (just kidding)

 

[tobe]

You are therefore either;

a) part of a small group of people who are in control of their finances at all times and never pay a cent in interest or late charges, and never buy anything with credit they wouldnt have with cash, such as impulse purchases, an upgrade to a consumer item or service etc, and for whom a 55 day interest free credit card is benificial or

b)part of a larger group who think they are part of the above mentioned smaller group, and are the target group for the lenders providing said facilities.

Statistically less than 10% fall into the smaller group, yet based on self assessment more than 70% put themselves in the smaller group.

We cant all be above average. Financial psychology is something I find fascinating. I wish there was more research on it.

 

[kathryn d]

You are therefore either;

a) part of a small group of people who are in control of their finances at all times and never pay a cent in interest or late charges, and never buy anything with credit they wouldnt have with cash, such as impulse purchases, an upgrade to a consumer item or service etc, and for whom a 55 day interest free credit card is benificial or

b)part of a larger group who think they are part of the above mentioned smaller group, and are the target group for the lenders providing said facilities.

Statistically less than 10% fall into the smaller group, yet based on self assessment more than 70% put themselves in the smaller group.

We cant all be above average. Financial psychology is something I find fascinating. I wish there was more research on it.

I have one credit card for personal spending..and the rest are for business use.
And yes, it would be paid in full in each month.

 

[tobe]

Im obviously not casting nasturtiums. If you were going to find people in the top 10%,they would be fellow posters on somersoft.

Incidentally, with the heating oil, is there another provider that doesnt give air miles, but might do a discount for cash?

in Australia there is a lot of talk about flybuy, and points providers inflating the price to compensate for the benifits 'given' away with poitns etc.

 

[kathryn d]

Im obviously not casting nasturtiums. If you were going to find people in the top 10%,they would be fellow posters on somersoft.

Incidentally, with the heating oil, is there another provider that doesnt give air miles, but might do a discount for cash?

in Australia there is a lot of talk about flybuy, and points providers inflating the price to compensate for the benifits 'given' away with poitns etc.

We already get a discount, because we do buy a fair amount.(and they allow us to offer our tenants the discount)
That is something I have been looking at also. It's just hard, because price flucuates so much.

I also have my Australian reward cards. I try not to let them influence where I buy.

 

[buster]

disagree about credit cards for points and the 55 days interest free.

just a scam to get more cash out of you.

finance psychology 101 says you will always be more tempted to pay more, buy more things with plastic, while at the same time telling yourself your definately one of those people who pay their credit card in full each and every month (even the month just after xmas). relativity bias tells you the couple of times you didnt pay in full were for special reasons, and besides you earned all those points anyway, so it was completely justified......

I have to disagree with you tobe, it aint a scam. If you pay all your bills at the start of the billing cycle and pay for what you have to buy anyway, pay off the balance every month, it only cost about $100 a year in fees, and get to take a family of 5 overseas every 2nd year on the points and the money saved in interest can be used for spending money. You must have ROCKS in your head not to take advantage of this.

 

[tobe]

Ive seen too many customers with loans linked to credit cards and offset accounts who havent taken overseas holidays every year, and are basically treading water with their homeloans. Ive refinanced them into boring old P&I loans and explained that a lot of people are more likely to spend more when they play with plastic.

As previously pointed out, those people in the top 10% who can control thier spending may have an advantage with an interest free credit card, but I highly doubt it equates to an o/s trip for a family of 5 every 2nd year.

You must have rocks in your head to think banks and credit providers are doing this so they can be taken advantage of. Is Visa losing money cause its flying everyone overseas every year? No, its making money cause people think they can play the system and get a free trip, and therefore dont research the price they could be paying for cash, and then they dont pay in full one or two months of the year, for justifyable reasons.

Im not making this up. have a look at some of the recent literature on financial psychology and economics and you'll see this isnt just my idea.

 

[kathryn d]

Just curious, how much must you spend each year on a cc, to get that many flights? (family of 5 o/s every second year)