We’ve all probably at one stage or another racked up a bit of debt on a credit card or missed a personal loan payment, but how do these things affect your credit rating and what happens if you have a red mark against your name? We turned to Christopher Zinn, consumer advocate and GetCreditScore.com.au spokesperson to answer some of the frequently asked questions on credit reports in Australia:
1. How is my credit report created?
The most common way is when you first make an application for consumer credit and the credit provider makes an enquiry on you. Other ways include:
- As the result of a commercial credit enquiry made by a credit provider or an organisation conducting a financial risk assessment.
- As the result of information received by Veda from third parties such as the courts, who hold judgement information, AFSA, who holds personal insolvency information and ASIC who holds directorship information.
2. What is recorded on my credit report?
If you’ve ever applied for credit, such as a credit card, personal loan, mobile phone contract or even store finance it is likely you will have a credit report.
Your credit report includes information such as:
- Personal information like your name, date of birth, address and employment details
- Applications you have made for credit known as credit enquiries
- Credit account details including open and close dates, type of credit and credit limit
- Repayment history information on credit accounts like credit cards, personal loans and mortgages
- Overdue debt or defaults
- Court writs or judgments
- Bankruptcy information
- Commercial credit information including if you are a company director or proprietor
3. How many years does a red mark stay on my report?
The length of time information stays on your credit file depends on the type of data. Identity information including your name, date of birth, gender, driver’s licence and address history is held for the life of the credit report. Typical timeframes for other information are:
|Repayment history information||2 years|
|Any credit enquiryOverdue accounts listed as a payment default
Overdue accounts listed as clearouts
Writs and summonsCourt judgments
|Overdue accounts listed as a serious credit infringement||7 years|
4. What are the effects of having a low credit score?
When you apply for credit – be it a credit card, store credit, new phone account, personal loan or home loan – a lender may conduct a credit check and this can include looking at your credit report and your score. The majority of lenders in Australia use credit scores, and specifically the VedaScore, as part of their process for making a decision on whether or not to give you credit.
The better your score, the better the chances of being approved for credit and in some cases, being able to get a better deal. A low score may mean being turned down for credit, as it is an indication of your creditworthiness and the likelihood that you’ll repay your obligations.
5. What isn’t affected by my credit score?
Your ability to open a bank account, plus employers in Australia cannot run a credit check on prospective employees, as can be the case in the US or the UK.
6. How can I improve my credit rating?
Here are five things that can help improve a low credit score:
- Pay monthly repayments on time. Set up direct debits or schedule repayments for your pay day.
- Keep track of your credit commitments. Do your research before you apply for credit and only apply for credit when you really need it.
- Pay any defaults. By paying any outstanding defaults you can help improve your score.
- Ask for your free credit report and check that it is accurate. Correct any errors. This can be done for free through your credit provider or Veda.
- Monitor your score regularly so you know if anything changes. Your score will change as information is added or removed from your credit report.