Many Australians are very unaware of what happens behind the scenes when they take out credit. We break it down and show you what it involves, and how your good name and ability to continually obtain credit all hinders on what creditors say about you on your ‘credit file’.
By Graham Doessel, Founder and CEO of MyCRA Credit Repairs and www.fixmybadcredit.com.au.
What is being ‘credit active’?
When you take out your first piece of credit – you become ‘credit active’. This could be a mobile phone plan, a loan with a bank, a credit card, or even a utility account. The creditor opens up a credit file in your name with one or more of Australia’s credit reporting agencies – Veda Advantage, Dun & Bradstreet, Tasmanian Collection Services TASCOL (if in Tasmania) or new entrant Experian Australia.
What is on my credit file?
Your credit file details all of your personally identifiable information including full name, date of birth, current address and also the type of credit that has been taken out now and in the past. Also recorded, are any times you have applied for credit ‘credit enquiries’ and any negative notations put there by creditors during the course of the credit agreement.
What is a credit rating?
Your credit rating is a term used for what happens when a potential creditor makes a request to see what is reported about you on your credit file. The creditor uses the information on your credit file to determine the amount you are able to borrow and your ability to repay the loan.
What is defined as a ‘bad’ credit rating?
In broad terms, any credit defaults, court actions or writs, external administrations and bankruptcy are all recorded on your credit file and would be considered ‘bad’ credit history by most credit providers.
In this current economic climate basic defaults and even too many credit enquiries or applications for credit may be considered to be tarnishes on your credit rating.
How do I get a bad credit rating?
If you fail to make repayments on any credit account past 60 days, then by Australian law the creditor has the right to notify you in writing of their intention to list the non-payment as a default on your credit file. This default remains present on your credit file for 5 years, after which time it drops off. If the creditor can’t contact you, and suspects you have left the premises or tried to avoid contact – they may list the non-payment as a ‘clear-out’ which means you would incur 7 years of bad credit.
How do I know if I have a bad credit rating?
Most people know they have a bad credit rating, because the creditor has advised them in writing that they intend to list something negative on their credit file. But many times, people are not aware they have a bad credit rating until they apply for a loan and a ‘surprise’ default or clear-out shows up.
If you are unsure what is on your credit file, you should take the time to find out.
The three major credit reporting agencies in Australia hold the credit file of millions of Australians. Veda Advantage alone holds over 14 million credit files.
You can write to or email one of these agencies and request a credit report, which is a copy of your credit file. If you are not in a hurry then under Australian law your credit report is free, and will be sent within 10 working days from application to receive this information. There are further charges for a faster service with many agencies.
I have found a default on my credit rating, what are the consequences of this?
If you discover you have a bad credit file, you will find it very difficult to obtain credit in the future. Generally this problem will keep occurring for the 5 years the default is on your file. This will probably prevent you from obtaining a home loan with most lenders and possibly lead to credit refusal of many kinds from cards to phone plans. Even if this bill is paid and noted on your file, this default usually remains on your record for 5 years and will be a detriment to any further credit you wish to take out during this time.
What can I do to fix the default on my credit rating?
Once you have obtained a report there are three things to consider about the negative listing:
1. Is it accurate?
2. Was I informed?
3. Is it fair?
If the report contains errors, or inconsistencies with the credit reporting process, be aware you do have the right to have errors rectified. Creditors do make mistakes in credit reporting. The way we handle it can be make-or-break for our good credit rating.
In many cases where people have attempted to remove the default themselves, they have come across difficulties and defaults have not been cleared. Most times the creditor will explain to the client that defaults DONT EVER get removed. The best they can do is mark the listing as paid (if it’s been paid). This may be both unfair and may not be sufficient to ensure credit is obtained with some lenders.
Can I employ someone to fix my bad credit?
If you have a default, writ or Judgment that has errors or just shouldn’t be there – there is a good chance that a professional credit repairer can actually remove it – meaning your financial future is looking a whole lot brighter.
A professional credit repairer works with creditors to negotiate on your behalf and work for your best outcome based on the creditor’s compliancy with the current legislation. They will also look at any other extenuating circumstances to determine if there is an avenue that can be investigated which results in having the listing removed.
Can I make positive changes to my credit file?
As the legislation currently stands in Australia, there is no way of off-setting bad credit history with ‘good’ credit history. Currently only negative entries are recorded – so you are considered to have good credit history if your credit file is essentially clear.
Australia is moving towards a form of positive credit reporting this year – but we believe banks will still not take kindly to any form of negative entry on a person’s credit file in this current economic climate.
How do I keep a clear credit rating?
To avoid a bad credit rating, it is essential to make repayments on time! If there is a problem with a bill, you still need to pay it on time. If there is hardship and you are finding repayments difficult, tell creditors. Most creditors have policies in place to assist with financial difficulties – but you must tell them to be eligible for this.
Keep your contact details current with your creditors so if there are problems they can contact you.
And make sure there are no mistakes on your credit file…
The best thing every credit-active person can do is to keep abreast of what is being said about them on their credit file with those free yearly credit file checks. This way, if there’s anything that appears on there that you are not sure about, you can look into it and get your credit file cleared if it should not be there BEFORE you front up to apply for any new credit.
If you have a bad credit rating, go through these 6 simple steps to see whether you may qualify for credit repair, or contact us tollfree on 1300 667 218 or visit our main website www.mycra.com.au :
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