How do you fix a bad credit rating? Well it depends on where you live. In Australia it can be difficult, but not impossible. Australians are best to follow advice from our own shores. Here’s some information on credit reporting in Australia and 5 ways you can improve your chances of obtaining credit.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
Google ‘fix bad credit rating’ and the list of articles on improving your credit score can be a mile long with countless advice on bad credit solutions and suggestions to fix what the banks see as bad credit history. People are looking for a way to overturn or ‘counteract’ a bad credit listing and get the best chance of approval for home loans, personal loans or any forms of credit.
What many don’t realise is that many articles from the U.S. and U.K. are not relevant on Australian shores. These countries have ‘positive’ credit reporting systems – very different from Australia’s. So the information, whilst good, often doesn’t apply for people in this country.
In fact, many times if Australians follow that information they may actually be hindering their chances of obtaining credit in the current market, not helping it.
So here is some information for people concerned about their credit rating, to have as a reference for what applies in this country for our unique credit reporting system.
What exactly is my credit file?
A credit file is made for every person who is credit active in Australia. The credit reporting agencies currently providing credit reports are Veda Advantage, Dun & Bradstreet, and Tasmanian Collection Service (if Tasmanian). There is also a new entrant Experian, but they are currently only collecting data.
A person’s credit file contains their personal information. It also records any credit applications, all loans which are current and also records any adverse listings such as Defaults, Writs, Judgments, Clear-outs or Bankruptcies* which are issued under that person’s name.
It is from this file that creditors make a decision whether or not to lend people money. This information is then available to banks and building societies; finance companies, utility providers, mobile phone companies and retail stores. These companies are all known as credit providers or creditors.
Any creditor may place an adverse listing on a person’s credit file if an account has been in arrears for more than 60 days. This includes phone companies, utility companies, and gyms as well as banks, finance companies and retail stores – and the outstanding amount can be for as little as $100. These listings are current for between 5 and 7 years depending on the listing, and ‘drop off’ the credit file after this time.
A negative credit reporting system
Currently Australian credit reporting operates under a ‘negative’ system. This will change as Australia moves towards comprehensive credit reporting, but until then – the rules of the game are very different from many other countries.
Only negative data is recorded on a person’s credit file. From this point of view – there is nothing people can do to counter-balance any negative data which is displayed on their credit file. It is either present – or not.
So is there anything I can do to change my bad credit rating?
The best thing you can do for your current and future credit rating is to make all of your repayments on time.
You can’t remove negative listings from your credit file unless you dispute the listing. You also can’t counteract the effect of those listings with ‘positive’ credit information yet either.
But there are a few other things you can do to improve how you appear to lenders potentially improving your chances of obtaining credit in Australia. Here are 5:
1. Reduce credit limits.
Lofty credit limits do not improve a person’s credit ‘risk’ assessment. If the loan applicant has a credit limit of say $20,000 on their credit card, the debt amount on that card will be calculated on $20,000 – even if the actual amount the applicant has owing on that card is only $5,000. So a potential borrower should seek to reduce any credit limits on cards or loans they currently hold.
2. Reduce credit enquiries.
Do not shop around for credit. Whenever a person other than the credit file holder makes an enquiry on their credit record – that enquiry is recorded on the person’s credit file. Currently there is no way of seeing on someone’s credit report if the loan was approved or not, only that the application was made. Some lenders are refusing home loan applications due to too many credit enquiries, such as two enquiries within thirty days or six within the year.
3. Check credit file regularly.
Anyone has the right to request a copy of their credit file, to see what is being said about them. This report is free for the credit file holder every 12 months. The request should be made to all the applicable credit reporting agencies, and a report will be made to the credit file holder within 10 working days.
There is the potential for creditors to make mistakes when entering listings on credit files. So anyone who is credit active should check theirs, regardless of how diligent they think they may have been with their repayments.
Many times people are unaware they have adverse listings on their file until they apply for credit and are refused. Unfortunately at that time it can be stressful, and they can lose the home or business they are trying to buy, or be forced to choose a different loan with a higher interest rate to accommodate their bad credit history.
4. Pay any outstanding amounts.
Currently even defaults which have been marked as paid may see you refused credit – but it can’t hurt to pay an overdue account if it should have been paid. Whilst the creditor cannot remove the listing, they can mark the listing as paid. Some lenders may overlook a default listing if other parts of the application present as low risk.
5. Remove errors from your credit file.
Adverse listings can sometimes occur due to identity theft; some people are caught in issues over separation from their spouse; some have been disputing the bill which went to default stage and many people are just victims of the fallout from inadequate billing procedures – wrong names, wrong addresses errors with creditor computer systems, and sometimes human error.
You have the right to have any inconsistencies on your credit file rectified. People should bear in mind that listings are not removed by creditors unless the credit file holder can provide adequate reason and lots of evidence as to why the listing should not be there.
Credit reporting is governed by strict legislation of which most consumers have limited knowledge of, and often very little time to get to know.
Many seek out the help of a reputable credit repairer who will be able to work on their behalf to assess their suitability for credit repair and then formulate a case based on legislation for removal – negotiating with creditors to have the default or other listing removed.
People can visit the MyCRA Credit Repairs website for more help with their credit rating, and help to repair a bad credit rating.
*Bankruptcies cannot be removed from credit files.