Credit Report

People often don’t realise the consequences of a poor credit history until they have a set-back when applying for some form of finance, whether that be a home loan, personal loan, credit card or even a mobile phone contract.  A shaky history of paying bills on time and outstanding debt directly impacts your credit score.

What is a credit report? 

If you have ever applied for credit or a loan (whether or not you went ahead), you are likely to have a credit report with a credit score.  These reports are prepared by credit reporting agencies and are quite comprehensive.  They show details such as your job history, address history, any change of name, company directorships which is used to confirm identity.  The finance providers pay close attention to the credit history which is a record of what finance you have applied for in the last 5 years and critically any negative comments on repayments.  These repayments could be anything from phone bills, utility or council bills, credit cards, personal or car loans, home loans, boat loans, etc.

What are credit reporting agencies?

These organisations collect information from credit providers who subscribe to their services.  The information has very tight privacy guidelines so that only relevant parties can access the information (you will sign a consent form for anyone to check).  You can get a copy of your credit report from them directly.  There are three main report agencies in Australia that finance providers reference when assessing applications.  Equifax (formerly Veda Advantage), Dun and Bradstreet and the Tasmanian Collection Service.  Equifax is by far the largest and most referenced.  Some links to them are included below.

What is a credit score?

Your credit score could be the difference between getting a loan approved or rejected. Few people understand the specifics of how a credit score is constructed, and consumers will have a different credit score with each credit reporting agency due to different methodologies.  For now, we will use the largest credit agency, Veda (now known as Equifax) as an example.  Credit scores  with them sit between 0 to 1200.  In February 2017, they reported that the national average was 757.  An “excellent” score is between 833 to 1200, “very good” is between 726 to 832, “good” is between 622 to 725, “average” is between 510 to 621 and “below average” is 509 or less.  The graphic below shows the spread of credit scores in Australia.  Two-thirds have a good, very good or excellent credit score.  17% have a ‘below average’ score.

Historically, credit reporting agencies have collected negative actions, being the late repayments, arrears and bankruptcy.  Since early 2017 they have moved to a comprehensive reporting model which now incorporates positive behaviours as well to give a more rounded perspective.  The glass can therefore be half-full rather than just half-empty.

How does that affect me?

When you apply for finance the provider usual checks that you can afford to pay for it and that your history supports this.  Finance providers use the information in your credit report to look at your credit history.  They are especially interested to see if you have a history of poor repayments, outstanding debts or worse still bankruptcy.  A poor credit score and negative repayment history will most likely have an impact on your applications.  Conversely, a high credit score and a good repayment history is great and will support an application.

What can I do about it? 

First and foremost, it is very much in your interest to meet all your financial obligations in full and on time.  Therefore, what you do now can impact your credit report and future applications for up to 5 years.  Missing a credit card payment by a handful of days is not going to materially impact matters.  The common errors are unpaid utility bills when changing address and mobile phone bills for family.  Another common one is an unpaid business liability.  If an arrears report has been placed on your credit file simply paying it off does not clear it off your record – it stays there until it rolls off after 5 years.  Small amounts (less than $500) if paid off and with a good explanation can be worked around with most lenders.

Most lenders have very little tolerance for defaults or bankruptcies.  There are a few specialised non-prime lenders which cater for this category of person.  The interest rates do reflect the higher risk but they importantly still offer a means of obtaining a home loan.

How do I find out what my credit score is?

Firstly, checking your credit report is not detrimental for your overall score.  You are entitled to check your credit report for free once a year.  If you need to see it quickly, there may be a charge, but if you are prepared to wait a little longer (1-3 weeks) it won’t cost you anything.  You will need to provide some personal information so that you are properly and correctly identified – this includes ID, address history, job history, etc.

Knowing your credit score allows you to apply for credit with confidence; you may be pleasantly surprised with your score.  At the very least it can save you from unexpected rejection and be the catalyst for positive change.

What if I don’t agree with something in the credit report?

The credit reporting agencies present information on a person’s debt as presented to them by finance providers.  It is not up to a credit reporting agency to

provide judgment or remove items from your credit report.  If you wish to challenge something that is on your credit report you will need to take this up with the finance provider.  You can get further assistance from credit repair businesses – check their fees and charges.

Beware!

A good or bad credit score isn’t the be-all and end-all of this.  Remember, how you conduct yourself with your own bank will also be a significant factor if applying for finance with them.  This is because banks are like elephants – they have incredible memories!  For example:  you bank with CBA and have done for years.  Your transaction account has always been in credit, you haven’t had any direct debits refused and your credit card has been paid in full and on time.  This type of customer profile is always going to be positive in any application.  On the other hand, if you have gone overdrawn from time to time and have missed repayments on a credit card of personal loan this will almost certainly count against you.  So, the golden rule is keep your banking tidy and in order.  Apply for a short-term overdraft if you need to get through a tight period.

Identity Theft

This is where other people use your personal information for their financial gain.  If you think someone has accessed your account, talk with your credit provider.  If you are contacted about debts with a credit provider you have never used, it is a good idea to contact all the credit reporting agencies as well as the Financial Ombudsman Service (FOS) by calling 1800 367 287 or visiting fos.org.au. In both cases, you should also inform your local police.  For a fee you can subscribe to the reporting agencies who will notify you of any changes on your credit report.

Sources of information:

	Equifax	13 83 32
	My Credit File
	Dun & Bradstreet	13 23 33
	Tascol	(03) 6213 5555

Credit Repair article: https://www.moneysmart.gov.au/borrowing-and-credit/borrowing-basics/credit-repair