Why credit ratings count

By Will Keall

You know that having a positive credit rating is essential to securing that home or personal loan or credit card limit increase; you are generally on time with repayments, have been smart with your money and have not defaulted on a loan or been declared bankrupt. But when you decide to apply for a loan, your application is rejected. Why?

Many people know the importance of their credit rating when it comes to borrowing money, but still aren’t sure what exactly is in their credit file, or what actions can make the difference between having your application for a loan rejected or accepted.

Your credit file, also known as a credit history/report, contains details of any involvement you may have with applying for credit, and is used by credit providers to assess your ability to repay a loan, credit card, telephone or utility account. This report discloses records of personal insolvency agreements, credit applications, company appointments (i.e. directorships), defaults, bankruptcy and current employer.

Another detail that will be seen on your credit record from March 2014 is your repayment history information. This information has been collected since December 2012, and so anything you do now can impact upon your credit report later. The repayment history notes when you have missed a payment, however it does not record the amount that was overdue, which means that even if you owe a small amount, it can still tarnish your credit record a great deal, as the creditor can only see that you haven’t paid on time. It is important to note that making a partial payment counts as a missed payment.

Individual ratings

The most common misconception surrounding credit files is that they come with a set credit rating, which is passed onto the financial institution upon your application for a loan or credit card. In fact, your credit rating is determined by each individual credit provider after looking at your credit file, so even if you are considered a liability by one, you may still be able to secure a loan elsewhere.

Before you go rushing off to apply for several loans at different lenders, be aware that your credit record also displays any applications you make for credit, even ones you do not follow through with. Having a number of applications on your record raises red flags for some lenders, so if you want to compare the deals of a few different lenders, try to do as much research as you can without filling in any paperwork (and tarnishing your credit record!). It is important to note that credit providers must obtain your permission prior to making a credit enquiry and this is usually done by providing a privacy consent.

The reason you need to keep your credit record as positive as possible is simple: any discrepancies stay there for at least five years, which may detract from your credit worthiness and hindering your chances at securing credit. You never know when you might need some extra cash, so be smart about paying your debts off on time. Maintaining a spotless record can also help you get a better interest rate on your loan, or a higher limit on your credit card.

How can I see my credit report?

You are entitled to see your credit report for free, but you may need to pay if you need it within 10 days. There are three agencies in Australia you can contact to get your credit file: Veda Advantage, Dun and Bradstreet and Tasmanian Collection Service. Being provided with a copy of your credit report doesn’t count as an enquiry either.

Never assume you have a good credit history just because you pay your credit card off on time; you may want to consider checking your credit file regularly for mistakes and, if you’re concerned, perhaps check it immediately before applying for a loan or credit card.

In addition, don’t get sucked in by agencies which claim they can ‘fix’ your credit file. While you may desperately want those red flag items erased off your file, only genuine mistakes on your credit file can be removed by the credit file agency or creditor if they are proven to be false. You may have accidentally forgotten to pay off the credit card one month, but it still counts as a late payment and will have to stay on your credit file for the next few years. In the meantime, try to keep on top of your finances to ensure a better credit file in the future!

Will Keall, iMortgage’s general manager, has a wealth of marketing and business development experience gained in Australia and the United Kingdom. These include high level roles in a range of sectors such as financial services, insurance, travel and tourism, motoring and professional services.

Will played a pivotal role in the successful establishment of iMortgage. His dedication and passion for the mortgage industry have won Will the utmost respect as an integral part of the iMortgage brand.

A self confessed “numbers and brand geek”, Will calls himself a conservative investor with a long-term philosophy. He also believes it’s important to “love where you live.”

Will is a cricket and football tragic, who also enjoys running.