There are approximately 3 million Australians* with adverse listings on their credit file, also known as a ‘bad credit rating’. Adverse listings can include, default listings, writs, Judgments, bankruptcies*, even excess credit enquiries. All of these can impact your ability to obtain credit. The consequences of having any issues with your credit file include home loan refusal, personal loan declined, and even being turned away from getting a mobile phone plan.
One problem is many people go searching on the internet for help with ‘improving their credit score’. This is most commonly an American term which has no bearing on Australian credit reporting law.
The Australian credit reporting system is currently a ‘negative’ reporting system. Only negative entries are included, and generally when a lender requests a credit report and sees listings on your credit file, they will be seeing these entries as negative. The laws are currently undergoing changes – but as a general rule – you don’t want late payments, defaults or credit errors holding you back from an otherwise perfect ability to service a loan or forcing you into choosing a loan at sky-high interest rates. You could pay thousands extra on a higher interest rate than your standard variable rate.
So you may be wondering, how then, can I fix my bad credit?
Well it depends on what comes up on your credit report….
The first thing you need to do is request your credit report. This can be obtained from one or more of the credit reporting agencies, and is a file on all of your credit information. You can request a copy of your credit file for free every 12 months.
If there are any adverse listings on your credit file which you believe are incorrect, contain errors or just should not be there – then you have the right to have those credit file errors removed.
The problem with attempting to dispute errors on your credit file with creditors yourself is two-fold. Without knowledge of the legislation, people almost invariably get caught in legal ‘loop-holes’ which see the default, writ or Judgment left on the credit file, or at best see the listing marked as ‘paid’. Both of these results DO NOT give you that home or car loan as lenders still consider even a paid listing as bad credit history.
Secondly, by talking to creditors themselves about credit file errors, people can accidentally ‘alert’ creditors to any mistakes they may have made in the initial method of credit reporting – allowing them to fix up their mistakes and negate the need to remove the credit file default which was placed in error.
If you are just starting out and wondering “How can I repair my bad credit?” then the best course of action is to instill the help of a credit repairer before you do anything yourself. They can help you get a copy of your credit file, and go through the bad credit history with you. They can then use their knowledge of credit reporting legislation to see where any errors in credit reporting were made, and help to enforce the legislation that creditors are bound to comply with.
If they are successful, you not only get help with removing errors, but many times you are able to start off with a completely clean credit rating. You have a clean slate and can go for any loan you choose at the best interest rates.
Once you have those defaults removed, then you can certainly ‘improve’ your credit history in the future with these 5 easy steps:
1. By ensuring all bills are paid on time. Keep track of and be aware of any stray bills – particularly when major changes are occurring in your life like moving house, divorcing, death, and illness.
2. By using credit. Having no credit history means there is nothing to calculate and the risk appears high to lenders. We should start by borrowing something small. Repaying mobile phone plans, internet accounts, or store credit on time will appeal to anyone checking our credit report.
3. Obtain a credit report every 12 months. This ensures there are no errors on your credit file. Sometimes human error means the wrong person gets the bad credit file entry, or adverse listings are entered incorrectly or unlawfully. If in doubt, talk to a credit repairer.
4. Beware excess credit enquiries. Only apply for credit you feel you have a very good chance of being approved for, and only applying for credit we have full intention of pursuing.
5. Show stability. If you are thinking about applying for major credit in the near future, consider that lenders are looking for a stable address, stable income stream and regular savings as well as a squeaky clean credit file to help with assessing your suitability for a loan.
* Veda Advantage 2009
* MyCRA Cannot remove bankruptcies from credit files