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Michael Blyth
ARCA
Head of Government, Regulatory & Industry Affairs
13 September 2018

When we are filling out a credit application, we all want to present ourselves in the best light, so that we’ll have a better chance of getting the loan or credit card we’re applying for. So, surely it’s okay to stretch the truth a little, right? Well, not really. Here’s why.

You’ll probably get found out, and it could backfire

Banks have teams of people whose jobs involve catching lies or omissions in applications. They’ve seen thousands of credit applications and they know what to look for.

They also have other sources of information with which to cross check your application.

For instance, they have access to your credit report, which is a detailed record of your credit history based on information from lenders who have provided you with credit in the past.

Upcoming changes to credit reporting laws will mean the major banks have to report not just whether you have had a default—meaning you have fallen at least 60 days behind with a repayment—but also any outstanding loans you have, and your monthly repayment history, revealing how much debt you have and how good you are at paying it back.

The supporting documents you submit with your loan application also contain a lot more information than you might think, making it possible for the bank to identify inconsistencies.

The lender will be less likely to extend you credit if they think you are lying or concealing the truth. What you may think is a harmless omission or a “little white lie” to improve your chances of getting a loan could in fact result in your application being rejected.

You may be putting yourself in financial hardship

Even if you don’t get found out, you’re still hurting yourself. Lenders have strict requirements for income, expenses, and debt levels for a reason. They help ensure that you don’t borrow more than you can afford to pay back.

If you mislead the lender, you may take on too much debt. You might think you can afford to meet the repayments now, but what if interest rates go up, your business doesn’t grow as fast as you’d hoped, or you get an unexpected bill? You may find yourself struggling to make the repayments while still having to meet your other financial responsibilities.

One omission or lie on your credit application, and you could slip into financial hardship.

It could prevent you getting credit in future

If the lender considers that you have acted fraudulently, such as by lying on your credit application, they can add a serious credit infringement to your credit report with a credit reporting body.

A serious credit infringement is a serious indicator of bad conduct and will stay on your credit report for seven years. By being less than truthful, you could severely tarnish your credit reputation and make it much more difficult to obtain credit in the future from other lenders.

It probably isn’t necessary, and there are benefits to being honest

In the end, it probably isn’t necessary to lie or stretch the truth. If the lender feels the loan you’ve applied for isn’t appropriate for you, they may be able to suggest a different product or a longer repayment schedule with smaller installments. You might not be able to service a loan the size you initially wanted but you’ll be more comfortable servicing a loan you can afford.

Alternatively, you could consider delaying your purchase for a few months to save up a bigger deposit, while taking a hard look at your budget for areas where you could cut back on spending in order to accelerate your savings.

When it comes to credit applications, honesty is the best policy, not just for the lender, but also for you.

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