It may only take a few notices from your credit provider to put an X-shaped dent in your credit record, but restoring it to a smooth finish is a much longer process.
If you’re one of the many Australians who have some form of blemish on yours, don’t give up hope. There are various ways to make it as good as new – or near to it – depending on the severity of the damage against you.
What is a credit report?
A credit reports holds information about a person’s credit history, including their applications to credit providers. There are three credit reporting agencies that keep credit reports in Australia: Veda Advantage, Dun & Bradstreet and the Tasmanian Collection Service.
“Your credit file is a history of any money you have applied to borrow as well as a record of all the times you have not kept your promise of paying it back,” says David Inglis, personal mortgage adviser, Smartline. “This file contains related information on behalf of credit providers such as banks and finance companies, and utilities like electricity and telecommunication providers.”
Your credit report is drawn on by any credit provider you apply to for credit. Even if you do have items listed on your credit file, it doesn’t mean that you can’t be relied upon to pay off what you owe. However, depending on what they are, these listed items will affect your ability to get a home loan approved.
For example, if your credit report shows you have applied for a credit card and, if you have a clean slate for paying it off, it won’t affect your chances of a home loan. If, however, you have a bad track record for continually missing repayments on the card, this increases your risk as a borrower to a prospective lender.
Maree Leach, sales and investment specialist for Team Maree Property Services, says many Australians misunderstand the importance of a credit record.
“Your credit file is like a blueprint,” she says, “and you have to remember that you are rated by each lender you do business with. Some lenders rate you by stars, for example. If you are late paying your account with them by a month, one star disappears. Then if this pattern continues, you may end up with only a few. But when you attempt to apply for a new loan in the future, your star chart is pretty grim and you are automatically declined. We really need to be careful of this, especially in tough times. Remember to pay your bills as they fall due or contact the lender to let them know you will be late paying.”
Warning: If you are applying for credit and your record has to be reviewed before you are approved, the credit provider should always ask your permission to check your credit file. However, if the company is not providing you with credit, they should not need to check your credit file at all.
Where to find your file
To get a copy of your credit file, you can log on to www.checkmyfile.com.au and order a free version which is then e-mailed to you, usually within 14 days of you faxing your details.
If you need it earlier than that, you can request a 24-hour turnaround, but you’ll have to pay about $30 for the service.
Once you have a copy of your credit file, use the following check list from www.fido.gov.au to make sure it’s as clean as a whistle.
The truth about late repayments
Let’s put your mind at ease and clarify the facts associated with late payments affecting credit records.
I f you are a few days late making your repayments, you’re not likely to get penalised on your credit record. However, it’s more important to know that this may vary according to your level of debt and the type of debt you are repaying. So, it’s much better to get into the habit of paying on time – every time.
If you haven’t paid your overdue accounts within 60 days of the first notice of payment (or when the final notice has lapsed) the debts will appear on your credit record.
Then, they remain there for a total of five years from the date they were listed on your file. Any court judgments and credit applications, such as credit cards and mobile phone contracts, are automatically added to your file and also remain there for five years.
However, more serious infringements such as bankruptcies stay on the file for seven years from the date of listing.
There are a number of processes your lender or credit provider goes through before the typical 60 days’ repayment period is up and you get a permanent red mark against your name.
Therefore, you should have more than enough time to pay off your debts if you happen to be late with one of
Credit record blunders and how you can fix them
Applying for a home loan several times
Problem: You submit several loan applications to various banks in the hope that one may be approved.
How to fix it: You need to be upfront and make sure that your application is directed to the appropriate lender (a mortgage broker can assist you).
Letting ego get in the way
Problem: You dispute small amounts such as a $100 phone bill, and then ignore further requests to pay. This is risking having the items listed as a default on your permanent record.
How to fix it: It would be best to just pay it and continue to dispute the amount afterwards.
Finding an error in your credit report and ignoring it
Problem: You find an error on your record, but decide it can wait until later.
How to fix it: Approach the company that placed the default on your file immediately and demand that it proves you owe them money, as it could very well be the result of mistaken identity.
You can also write to it in hard copy or e-mail explaining your dispute and ask for a written response. If necessary, try contacting Veda Advantage as well
and inform them that there is an error on your file.
Then, if you’re a submitting a loan application, tell the bank that there’s a ‘correction pending’.
Not being upfront with your defaults
Problem: You are less than forthcoming with your lender about your past defaults, hoping the past issue may be missed.
How to fix it: You need to be upfront and honest – the lender wants to know the events/reasons that caused the issue (promotion, illness and/or personal problems, etc), and how things have changed so that they won’t recur. As long as the lender can understand the circumstances, you stand a better chance of getting the loan. However, you need to make sure that you are honest in
Failing to keep tabs on your credit record
Problem: Over the years, when changing jobs and moving house, you lose track of details on your credit record.
How to fix it: Run a free check on your credit file every one or two years to keep up to date with your credit position. Always make sure you know where your mail is redirected to and how you are going to pay your bills.
The typical reasons for items being listed unknowingly are:
• a person moved house and a bill wasn’t redirected
• a cancelled account was thought to have been paid in full
• a person decides to go bankrupt over a phone bill they couldn’t pay
Other mistakes appearing on your credit record might have an adverse effect on your rating such as:
• incorrect personal details
• lack of positive personal details
Defaulting on your mortgage and other loans
Problem: Missing your regular mortgage repayments as well as other debts
How to fix it: Aim to consolidate all your personal and credit card debts into your home loan for a more manageable solution each month. Your record holds these defaults for up to seven years, after which you can start clean again. In the meantime, you should avoid overcommitting yourself and attempt to develop a positive file. You can do this by maintaining your repayments, and even taking on smaller, more manageable monthly commitments.
Mistiming your home
Problem: You apply for a home loan before you move house or change jobs.
How to fix it: Applying for credit is all about the timing and the risk involved with each individual borrower.
If you are thinking of changing your abode or work situation in any way, it is sensible to wait until your credit is approved unconditionally.
Failing to keep up with your financial obligations
Problem: You’re not great at keeping a diary, appointments or paying your debts.
How to fix it: Arrange to pay your regular commitments by direct debit. This then ensures they are paid even if you are away on holidays. Contact your credit providers and other companies you pay monthly and organise to submit the appropriate account details for payment by direct debit. YM