Term deposits vs. High-interest bank accounts

Term deposits vs. High-interest bank accounts

You may have noticed a lot of advertising, especially in the last few years, around high-interest bank accounts. These are bank accounts that reward people with a higher-than-average interest rate on their deposits if they meet certain conditions. In some circles, they’re becoming more sought-after than “traditional” higher-yield term deposits. But what are the differences between them? Read on in Smallloans.com.au latest edition of Finance Explained.

What is a term deposit?

A term deposit is an amount of money that you deposit in a bank or credit union that have a fixed amount of interest over a fixed timeframe. For example, a term deposit may have an interest rate of 5% per annum (p.a.) over five years. The interest is then paid on the deposit when the deposit matures (i.e., finishes.) or annually in the case of longer deposits.
Some banks calculate interest in even shorter intervals such as monthly or even daily, and give you a choice of these interest terms. Term deposit lengths (“terms”) can range from six months to several decades (in some cases.)

What is a high-interest bank account?

A high-interest bank account does what it says on the tin – it’s a bank account that pays higher than average interest rates on deposits. This may come in the form of bonus interest when you don’t make any withdrawals and/or deposit a certain amount within a certain period (usually a month.)
Sometimes these accounts are known as “online savers,” and are not accessible at ATMs. You can only use it via your bank or credit union’s online banking service.

Basic vs compound interest

High-interest bank accounts will usually only give you basic interest, i.e., interest on the amount in your bank account. Some term deposits earn interest not only on the initial deposit, but on the interest you have already earned. This is called “compound interest” and gives you an extra “bonus” without having to deposit more money. Even so, these may vary.

So what’s better?

That depends on what financial circumstances you are in. If you have a lump sum of money and have no intention of touching it over a long period of time (several years, say) then a term deposit may be best.
The advantages of a term deposit are that your interest rate is almost always fixed and not subject to outside market pressures and official cash rates. Term deposit interest rates are usually much higher than bank accounts. If you have a significant amount to deposit, you may be able to negotiate with your bank on even better rates.
The downside is if you need to withdraw from the term deposit, your high interest payments are all but lost. This varies among different term deposit products. In some cases, if your interest rate was 7%, the penalty may be 3%, leaving you with 4% interest. Other products may have a limit of what you can withdraw without being penalised. It’s your responsibility to ask these questions when inquiring about term deposit products.

Flexibility vs. reward

High-interest bank accounts are better for people who require flexibility. Even though some of these bank accounts are “online only,” you can use your online banking facility to transfer funds into your “everyday” banking account or credit card account when needed. The downside is you will forfeit any high-rate “bonus” interest for that time period, only gaining the usual “base rate.” Also, your interest rate is influenced by official cash rates. If it goes down, so does your interest rate.
Some high-interest bank accounts also require you to deposit a minimum amount each time period to qualify for the bonus interest. If you do not deposit these funds, then you won’t get the bonus interest either.
Some high-interest bank accounts also attract fees, so you should also factor this into any savings goals you may have.

Making and sticking to financial New Year’s resolutions

Making and sticking to financial New Year’s resolutions

Happy New Year! We hope you had a rest over the Christmas/New Year break. One thing that probably didn’t was your wallet. Christmas time can really give your finances a hiding. Buying presents for your family and friends, all the extra food you might need, going on holidays and the fact you may be working less all puts a strain on your finances. If something unexpected happens, you might need a little cash loan to tide you over.
Many of us make New Year’s resolutions – lose weight, spend more time with family, or as we’ll focus on here, get your finances in order.
Think you will succeed first time? Think again. According to a wide range of sources a measly 8% (on average) of people stick to their New Year’s resolutions.

How can you be part of that 8%? Read on:

Be specific in your goals
You might have a financial goal in mind for 2015. Saying “I want to be debt-free” or “I want to have real savings,” – that’s a great start. But you need to really be specific in order to achieve anything. A mission needs a success condition; something that shows you that you’ve made it.

So be specific in setting your finance goals.

Instead of, “I want to be debt-free,” say, “I want to have paid off my car loan by December 31” or “I want to have reduced my home loan ahead of this year’s projections,” or something to that effect.
If you want to have more savings, that’s even easier. Just pick a number and you’ll know exactly when you get there.

Make it tangible

It also helps to have something tangible attached to those goals. You also need to set a definite time limit. For example: “If I save $4,000, I will take my family on holiday to the Gold Coast for Christmas 2015.”

Make it a habit

Really, New Year’s resolutions are just another way of saying “I want to develop a good habit” or “I want to put an end to a bad habit.” Habits come through repetition until they’re second nature. Now that you have your goal, break your goal down into smaller goals. Make these goals weekly, fortnightly or monthly.
Let’s say you want that Gold Coast family holiday. Break this big figure ($4,000) down into 52 smaller goals. You’ll have to put away about $76 a week. That seems more achievable than a huge goal, and you have easy steps to get there. Nominate a day, put 76 dollars away.

Make things easier

Habits are hard to maintain but easy to break. That’s why you need to make it easier on yourself. Set up reminders to practice your new habit daily or weekly with smartphone apps, visual aids around the house or friends and partners. (The latter keep you very accountable – they’re walking, talking reminders!)
Using the saving goal we mentioned earlier, to prevent touching the money, set up a high-interest savings account that rewards you when you deposit and don’t withdraw. You may find you’re successful ahead of schedule.

Don’t be too hard on yourself

People break habits all the time. Don’t be too hard on yourself. You can only really commit to making a change today. Keep to your resolution each day by reminding yourself, keeping accountable and learning from failure if and when it comes. No one, not even your friends and partners helping you with this resolution, expects you to get it right the first time. Every (reasonable) finance goal you put your mind to can be achieved!

What is a debit card?

Finance explained: what is a debit card?

The amount of plastic cards in our wallets and purses seems to go up and up over the years. In the wake of new technology such as PayPass or PayWave, its easier than ever before to make purchases on credit. But with credit comes credit card interest rates on purchases and balances. If you don’t pay off your credit card debt, it soon climbs higher and higher. But you may have heard of a product that’s similar to a credit card: a debit card. What is it? Find out more in Smallloans.com.au’s latest instalment of finance explained.

It’s not an ATM or EFTPOS card

Most banks issue their customers with an ATM card or EFTPOS card so they may withdraw or deposit funds from their bank account(s) at an Automatic Teller Machine (ATM.) These cards allow you to pay for goods and services using Electronic Funds Transfer at the Point of Sale (EFTPOS.) Your PIN essentially authorises a “wire” of money from your account to your merchant at the register (point of sale.)
What is important to note here is that EFTPOS runs on a parallel “network” to credit cards such as Visa or MasterCard. Depending on choosing “cheque, savings or credit,” your information to authorise your transaction is routed in a different way.

A credit card using your own money

Put very simply, a debit card authorises transactions across the various credit card networks. The point of difference is that it draws funds from a cash account, not a credit account. You must add funds to your debit card account; otherwise your purchase will be declined. A credit card account is a line of credit and is “spent” into existence. Your purchases will be declined if you hit your credit limit. With a debit card, you cannot spend what you don’t already have.
The benefits of a “credit” card without attracting interest
The debit card, for all your merchants and service providers know, is a credit card. It uses the same amount of digits and expiry dates as a credit card and uses a back-of-the-card Card Verification Value (CVV) for added protection. The only real difference is where it takes its money from. You can use your debit card in every same way you use your credit card. That means you can use it to purchase things online, over the phone or via mail order.

Debit cards enable use of PayPass and PayWave

MasterCard PayPass and Visa PayWave are based on smart chip technology and a digital communication method called Near Field Communication (NFC.) NFC is found in many applications such as proximity card readers at secure workplaces and even on your mobile phone so you can transfer files by “tapping” phones together. By “tapping” your card against a card reader, you can automatically authorise purchases. Right now, these purchases are capped at $100. Anything higher than that and you must enter your PIN.

Extra security and peace of mind

For those afraid to give your credit card details over the phone or online, a debit card combines the protection of your credit card network anti-fraud and verification services and the fact would-be scammers or skimmers can only take out what’s in your account. They can’t touch your credit account or bank account.
For example, you can transfer the exact amount of your purchase (including any surcharges), make your purchase and then have nothing in your account until you need it again. (Bank fees and charges may apply depending on who you bank with.)
It’s also handy if you need to limit your spending or are trying to avoid going into debts, since you can only spend what you already have.

What is the stack method? What is the snowball method?

Finance explained: What is the stack method? What is the snowball method?

All of us have some kind of debt to pay back. It could be a mortgage, personal loan debt, car loan debt, student debt or credit card debt. According to the Australian Bureau of Statistics, 70% of all Australians have some kind of debt they are paying off. There are two main ways of paying these debts off quickly that you may have heard about. They are known as the “Stack” method and the “Snowball” method. But what are they? How do they work? Join Smallloans.com.au for a walk through these debt reduction methods in this edition of Finance Explained.

Before you start

Before you commit yourself to using either of these methods you have to stop creating new debts, if you can avoid them. You may also want to think about creating and sticking to a strict budget. Sometimes the unexpected happens and you’ll need a small cash loan or a payday loan to help you out. But if you don’t need that new TV or new car right at the minute, wait until your debts are cleared or are significantly paid off before creating any new debts.

Method #1: The Stack Method

The Stack Method is a way of paying off your debts in order of highest interest rate to lowest interest rate. Here is what you do: you get a list of all your debts owing right now. You rank them from the highest interest rate to the lowest interest rate. This might look like:
1. Credit card – $4,000 at 19% p.a – highest interest rate
2. Personal loan – $6,000 at 10% p.a. – 2nd highest interest rate
3. Car loan – $2,000 at 8% p.a. – lowest interest rate
The stack method advises you to pay the minimum monthly amount on your Car loan and Personal loan, directing any extra money to paying off your Credit card. The idea is that the less time that passes paying high interest rates, the better. Even though the personal loan in this example has a higher balance, you are still paying far less in interest.

Method #2: The Snowball Method

The Snowball Method kind of flips the Stack method on its head a bit, as this method directs people to pay off the lowest balance first, regardless of interest rate. So using the example above, we’d now rank these:
1. Car loan – $2,000 at 8% p.a. – lowest balance
2. Credit card – $4,000 at 19% p.a. – 2nd lowest balance
3. Personal loan – $6,000 at 10% p.a. – highest balance
Just like the Stack method, the Snowball method directs you to pay all your minimum repayments every time, on time. But in this case, you would funnel all your additional money after bills and necessities to the Car loan. The downside is that you will eventually pay more in interest than the Stack method, but this method inspires you to keep chipping away, as paying off each individual loan or debt comes quicker.

Which is best?

There’s no real answer to this; it depends on your individual preference. If you feel you might not stay on track, the Snowball method is best as it gives you more satisfaction and a sense that you’re making real progress. If you tend to be more logical about things, the Stack method is the best. That’s because paying off higher interest rate debts first will save you more money in interest repayments. These methods are simply guides to help you out of debt sooner. Whether you use Stack or Snowball, you will be well on your way to reducing your debt, perhaps down to zero.

Retail interest free deals

Finance explained: Retail interest free deals

The end of the year is fast approaching. We all know what that means – Christmas! We all love getting and buying presents, sometimes more for ourselves than anyone else. But the urge to splurge comes in many different forms. Retailers will try to entice people to buy big electronics and appliances with “interest free” deals offering “no repayments” until a later date. That all sounds well and good, but what does that really mean for you? The team at Smallloans.com.au tell you that and more in this instalment of Finance Explained.

What the retail shops want you to think

When the shops need to make way for newer stock, they may entice people to come in and buy items with “interest free” monthly repayments or “buy now, pay later” deals. The latter of the two are called “deferred payment” deals. Sometimes your retailer will ask for a small up-front deposit, and others may advertise the deal as 100% no money down. You might think this is great – paying off the total cost over a set number of months without any interest on top of the cost of the item.

What it all actually means

When repaying monthly, what these shops hope you do is pay back the item with minimum monthly repayments. Why? Because the minimum is far below the amount required to pay it all off before the interest starts being charged. Sometimes you will find you are not allowed to make extra repayments and pay the item off in the interest free period. After the interest free period expires, you could be paying interest rates as high as 30% – almost double that of a consumer credit card.

Interest free isn’t cost-free

These interest free purchases are rarely ever cost free. The shop may charge you an establishment fee, monthly service fees and late payment fees. The monthly service fee could cost you hundreds of dollars after four or more years. Deferred payment deals might slug you with huge fees and charges after the interest free/no repayment necessary period. They may ask for a huge amount in a relatively short period of time.

Store credit cards

Usually shops and stores will issue you with an in-store credit card when you enter into these deals. These cards have higher limits than the cost of your purchased item. Also, they will have higher interest rates than consumer credit cards. If you can, ask for the limit to be reduced to the cost of your item. Otherwise, cut it up and never use it! It might be worth sticking to your credit card for future purchases. Of course, a great alternative is taking out a small cash loan. Lenders are tightly regulated by ASIC, follow sound practices and you will always know exactly what your obligations are from the minute you sign up.

Remember to do your homework

If you are tempted by these deals, make sure you know exactly what you’re getting into. If you want to take advantage of the interest free period, insist on making repayments that will pay off the item in full before the interest rate kicks in. Don’t trust what the slick-talking salesperson says about how you can afford this great offer; they’re just after a sale. Remember, you can ask for layby options (paying off in instalments and taking home the item after it’s paid off). If there’s anything you can’t go past, it’s your choices! You don’t just have retail shops to choose from, you can also pick online stores and online marketplaces such as Gumtree and eBay. Don’t just settle for the first place you find!

What is an overdraft?

Finance explained: What is an overdraft?

Many of us have smartphones and use them to track our banking. The big four Australian banks all have apps for Apple and Android, and many of the smaller banks and credit unions are starting to offer them as well. Occasionally, you might get notifications about offers through your apps. One product banks offer their customers is an opportunity to raise their overdraft. But what is an overdraft? Let the team at Smallloans.com.au tell you plainly in this instalment of Finance Explained.

Overdrafts put simply

Simply, an overdraft or “going into overdraft” is when you take out more money from your bank account than you have in it. For example, if you take out $100 from your account which has a balance of only $50, you will have an overdraft of $50. For personal accounts, the bank will honour the transaction more often than not. This leaves you with a negative balance. You must pay back the balance by depositing more money into your account to cover the debt. Usually they want this done as soon as possible. Banks may charge you an overdraft fee, an establishment fee or interest on the amount overdrawn. This is the most common type of overdraft. However, there is another type that’s more common among business account holders and home loan borrowers.

The two types of overdrafts

The example of the overdraft mentioned earlier is called an “unarranged overdraft” – something that happens unexpectedly. But there is another type, called an “arranged overdraft.” This is something you apply for, like you would a credit card or personal loan. Arranged overdrafts often come with limits ranging from $500 for personal accounts up to $10,000 or more for business customers.
Arranged overdrafts also come with interest and fees when you do overdraw on your account. You will have to speak to your bank directly about those fees. In some cases, the interest rates on arranged overdrafts can be reduced by putting up a security (such as a car or a house) as well. As always, unsecured loans mean a bigger risk for the bank, which means higher interest rates.

Available balance vs. “real” balance

One confusing aspect about personal finance is the concept of “available balance” vs. your “real” balance. You often see this on your ATM slip. An available balance isn’t always showing you what’s actually in your account. This may be higher than your “real” balance, as it may be your real balance plus cheques that have yet to clear or other transactions that have not yet been processed. Let’s say you have an available balance of $100. This is made up of $50 of savings and a $50 cheque that’s yet to clear. Let’s say you withdraw that entire $100. Despite having a $100 “available balance,” you will still be overdrawn by $50. You may lose much of that remaining $50 when it does clear to overdraft fees and charges.

Overdrafts can become traps

If you are constantly overdrawing on your account, it can quickly become a trap. You will be paying back interest, dishonour fees and other charges associated with overdrafts over and over again. These overdrafts, if they are common, may end up damaging your credit history. It makes sense to seek alternative forms of credit, such as payday loans and small cash loans. These products may end up cheaper than making an overdraft. They can also keep your bank account from going into overdraft in the first place. Other products such as small loans are lent out by licenced credit providers must show you exactly what you must pay back up front. This is in contrast to some the terms and conditions of “unarranged overdrafts,” which may be hidden in the credit contract that you have with your bank or credit union.

what is a recession?

Finance explained: what is a recession?

Many of you may be following the news about the G20 in Brisbane last week. Some of the reports centred on Japan and its economy. Its bad news for people in Japan, as their economy is now in recession. The word “recession” has been on people’s minds since about 2007, when the Global Financial Crisis hit. Many people were worried Australia might go into recession. Depending who you ask, there are many people to thank for Australia avoiding recession. But what is a recession? The team at Smallloans.com.au are here to explain.

A simple explanation

A country’s economy goes into recession when the growth in Gross Domestic Product goes backwards for two quarters in a row or more.
A GDP is a sum of all of a country’s contribution to the domestic economy. This can be worked out by how much business or the public sector produces and what’s bought and sold in the marketplace.
Sometimes the GDP per capita or “per person” is calculated too. This is usually an indicator of a country’s overall wealth. Countries with higher GDP per capita are “richer” than those with lower GDP per capita. Higher living standards are usually found in countries with high GDP.

What generally happens?

When a recession occurs, a lot of different things might already be happening in the economy. Economists call this an “inequality in aggregate demand” which put plainly means there’s more goods being produced than people buying them. These might be houses, cars, consumer goods or business services.
When this happens, there are many flow-on effects. Businesses may not be able to sell their products and services. This means they cannot hire staff, or let go some staff they already have. That means more people will become unemployed or stay unemployed. This definitely happened in the United States during the “Great Recession” of 2007, as the unemployment rate almost hit 10%.

What does that mean for me?

If you work in a business that will have trouble selling its goods or services during a recession, you may lose your job or miss out on pay rises. Of course this isn’t a rule. It is something that happens in a recession more often than it does during boom times or periods of normal economic activity. You may have heard some jobs being “recession proof,” since there will always be goods or services that people really need, like groceries, healthcare or utilities.
When recessions hit, prices generally have to fall to attract demand. This might mean your house will become worth less than you originally paid for it.
This was widespread during the Great Recession in the United States. People who bought say, $200,000 houses with $200,000 loans were suddenly paying back the same amount on a house now only worth $100,000.
Not only that, but the stock market may also take a dive. The shares you may have bought at a higher price are suddenly worth much less. On paper, you are certainly in a worse off position.

Cuts in interest rates

Sometimes a recession will prompt the Central Bank to cut interest rates. Read our blog post on interest rates for more information. The cuts in interest rates are designed for banks to get more money into the economy so businesses can grow, hire more people and get people spending.
Sometimes this doesn’t work because businesses are focussed on saving their money instead of spending it. This causes a “paradox of thrift” that the saving doesn’t actually save the business in the long term; it only harms the economy further.
The economy is always in a cycle, caught between good and bad periods. Recessions aren’t totally avoidable, but we all have to deal with them when they happen.

Paying off your mortgage sooner

Tips: Paying off your mortgage sooner

The Great Australian dream is to own your own home. Some house prices are at ecord highs and seeming to stay that way. It’s much harder for a lot of Australian families, particularly younger families to save on home loans. Taking on a mortgage is a big life decision. A lot of people are scared they’ll be paying off loans well after their kids have reached adulthood. As financially responsible lenders, Smallloans.com.au has put together these tips for paying off your mortgage sooner.
Some of the tips may apply to large loans like car loans and personal loans too, but you should always consult your broker or lender for more information.

Make extra repayments

The one sure fire way to pay off your home loan sooner is to make extra repayments. You should ask your lender if you can do this, as sometimes lenders might slap penalties on you if you decide to go down this route.
Let’s say you’re paying your home loan off monthly. If you switched to fortnightly repayments, you are effectively making 13 monthly payments per year (26 payments all up.) In some cases, these repayments may come with loading – i.e., they are not as “cheaper” as paying monthly instalments.
Some lenders may allow you to make periodic lump sum payments which also helps pay your loan off quicker.

Find a loan with a cheaper interest rate

If you’re on a home loan with a high interest rate, you don’t need to be. Sometimes loan lenders will try to entice you to take out loans with them with what’s called a “honeymoon” or “introductory” period with a below-market rate which bumps up to the full rate after a period of time.
You can shop around for other home loans while still tied to your current lender. This is called re-financing. Sometimes people re-finance to raise more money for extensions, renovations or to consolidate loans.
Other loans may have lower interest rates, lower fees and other benefits like lines of credit. You’ll have to decide what loan’s features are right for your situation. It’s worth shopping around, even if you’re happy with your home loan at the moment. You may be surprised with what you might find.
If you are on a higher interest rate due to bad credit and have made efforts to correct your credit, refinancing may save you lots of money, especially if you are eligible for mainstream loans with market-based rates.

Ask your lender to work harder

If you aren’t satisfied with your current lender, schedule a meeting to discuss better options. After all, you are their customers and they are there to help you. You may be able to switch to a different loan product without paying new fees and keep your same lender. If you tell them you are considering other options, they should be working hard to keep your business. If they don’t, then perhaps that is a sign you should move your loan elsewhere!

Do your homework

As always, it pays to do your homework. People that do their homework are usually the ones paying off their mortgages a lot faster! Having all your knowledge ready comes in handy when looking for new lenders or putting your current lender to task.
The ASIC MoneySmart website has a whole lot of information on re-financing and other helpful tools such as repayment calculators. If you’ve been wondering about re-financing or anything else about paying off your mortgage sooner, it’s worth a visit.
Click here to see the ASIC MoneySmart page on home loans.

What’s the difference between a bank and a credit union?

Finance explained: What’s the difference between a bank and a credit union?

The market for banking is healthier than ever. So you may want to know – what’s the difference between a bank and a credit union? Australia has the Big 4 banks – Commonwealth Bank, ANZ, Westpac and NAB. But there are many smaller banks and credit unions to choose from, which all have their own benefits and drawbacks.
In this post, the team at Smallloans.com.au will tell you what makes banks and credit unions so different, and what that means when you’re looking for a place to park your savings or take out loan products.

Private vs. mutual benefit

The major difference between banks and credit unions are how the business is set up. The Big 4 banks that we mentioned earlier are public companies. That means they are listed on the Australian Securities Exchange (ASX) and people can buy and trade shares, or “pieces” of the bank. You don’t have to be a customer of the bank to buy their shares. The bank has an obligation to maximise their profits as much as possible, paying out dividends to their shareholders. Only shareholders have the right to choose the Board of Directors of a bank and vote at their official shareholder meetings such as an AGM.

Members vs. shareholders

Credit unions are not publicly listed on the ASX. Every customer in the credit union becomes a member. This means they own a piece of it and have a say in how the credit union is run. Each member can vote and choose the Board of Directors. Instead of focusing on making the biggest profit for their shareholders, credit unions often re-invest profits into better customer service, making their lending rates more competitive, lowering fees and focusing on community investment.

Are credit unions as safe as banks?

Yes. Credit unions have to jump through the same regulatory hoops like banks do. Credit unions, mutual banks and mutual building societies are Authorised Deposit Institutions. This means they must be licenced by the Australian Securities and Investment Commission to provide credit services and are overseen by the Australian Prudential Regulation Authority, the same as banks. Some credit unions follow the Customer Owned Banking Code of Practice that promises to put members first, among other things. Also note that balances up to $250,000 deposited in these licenced institutions were guaranteed by the Federal Government in 2012.

What are the upsides/downsides?

An edge credit unions have over banks is their attention to customer service and solid ties to a community. A credit union will bring together businesses and individuals from the community to enhance the wealth of everyone overall. Some credit unions are based around certain industries. For example, many state Police Associations and Teachers’ Unions have their own credit unions. Because profits are reinvested into the credit union, they may be able to beat out banks’ interest rates paid on deposits and provide lower fees than mainstream banks.

What credit unions struggle to provide

Credit unions operate with the cooperation of members. Unless the credit union is fairly large, they may not offer online banking services through your web browser or via a smartphone app. You may find it very difficult to find a credit union-owned ATM, and pay those annoying ATM fees all the time. If you want to borrow money to invest in property, shares or large projects that require substantial amounts of capital, a credit union may not be equipped to help.
If you are searching for a new bank, it might be worthwhile to check out what products credit unions can offer you too.

Loan ID and document checklist

Loan ID and document checklist

If you’re looking for a big loan, like a mortgage or a car loan, you will need a lot of documentation when you apply. Some loans such as low doc or no doc loans are available, but these are reserved for special cases. Read our blog on those types of loans, here. Here’s a checklist of all the common documents you typically need when applying for a loan.

Personal identification and points

You may have heard of the term “100 points of ID” or in some cases, “300 points of ID.” This was set up in 1988 under the Financial Transaction Reports Act making sure customers and banks are protected against identity fraud and are held accountable.
Basically different identity documents are given a number of points based on how well the document proves your identity. For example, a birth certificate is issued at your birth and witnessed by many people. This verifies your identity much better than a phone bill or a credit card.
Primary documents such as a birth certificate, passport or citizenship certificate usually carry 70 points. Documents with a photo and a name attached such as drivers’ licences are given 40 points. The less information a document has the fewer points it gets. Here is the breakdown:
• Primary document (passport etc.) = 70 points
• Secondary document: document with a photograph and name (drivers licences etc.) = 40 points
• Official document with name and address (rates notice, land title, mortgage papers etc.) = 35 points
• Document with name and signature (Credit card, Medicare card, EFTPOS card) = 25 points
• Document with name and address (utility bill, bank statement, electoral roll, lease agreement) = 20 points
• Document with name and date of birth (Trade union card, educational institution card) = 25 points
Sometimes you will need to bring in or send off what are known as certified copies.

What “certified copies” means

A certified copy of a primary or secondary document is copies of your documents sighted by an official. They can verify that these are true copies of the original documents. They usually write on the copied document, holding it up to the original. Then they sign it with their name or a special stamp.
Here are is a partial list of people who are authorised to certify documents:
• Health practitioners (nurses, doctors, dentists, pharmacists)
• Legal practitioners (lawyers, attorneys)
• A person on the roll of the Supreme Court or High Court designated a legal practitioner
• An officer or authorised representative of an Australian Financial Services Licencee with two or more years of continuous service
There’s also a long list of people who can certify documents such as teachers, public servants and other professionals. Check here, as you may know someone in these organisations who can help.

Proving income

Before approving a loan, a bank or lender will likely want to see proof of income. These may be payslips that show the lender how much you have earned in the last three or six months, or your most recent tax return. You may also want to bring in a signed letter from your employer confirming your employment status. You should also bring in your bank statements from all your accounts proving you have savings.

Other helpful documents

Other helpful documents you may want to produce are lists of assets and liabilities, shareholding statements and statements from rental income. Documents, such as a landlord reference, prove you have a stable residential history and that you’re a low risk to lenders. Better yet, you may want to show lenders you have current insurance policies such as home and contents, life insurance or income protection insurance. It all helps when trying to get a big loan.