They know if you’ve been good or bad with your credit. How? And who is ‘They’?

What is a credit report?

In basic terms a Credit Report is an overview of your financial history, specifically looking at how your conduct has been with loans and in turn how reputable you are with your creditors. These reports are maintained by Credit Reporting Agencies.

What is on the report?

There is a fair amount of information about you on your credit file. This can include:

Your personal information: Full name, gender, current and previous residential addresses (up to 2) your date of birth, driver’s licence number and your current employers name.

Bankruptcies: If you have filed for bankruptcy or had a court judgement against you to do with debt
Applications for credit: This will include any loans you have applied for in the past 5 years. This will include loans, credit cards and store cards.
Business information: Any business you own or are a director for
Number of credit inquiries: When you apply for a loan, this is listed on your credit file even if you aren’t approved for the loan. This will include applications for the past 5 years for loans, store cards and credit cards.
Current credit: Any providers of finance you currently have credit with
Defaults: If you have not paid an account or bill over $150 and it is more than 60 days overdue, this will appear as a default and remain on your credit report for 5 years, even after payment has been made on the default.
Overdue payments: If the credit provider has been unable to locate you to demand a payment these are known as ‘clearouts’. Clearouts remain on your credit report for 7 years.

Comprehensive Credit reporting

In the past, only negative data was stored on your credit file. In 2014 the Government introduced Comprehensive reporting that showed your good credit history as well. It still includes any negative credit history but if you have good credit conduct, it shows on your credit file.

Credit scores

With the full view of your credit file, you will end up with a score.

Using Equifax scoring system (formerly known as Veda Advantage) your score will range between 0 (never had credit or had serious misconduct) to 1,200 being excellent. The lower the score the MORE likely it is that the borrower will experience an adverse event that will harm their credit in the next 12 months. The higher the score, the less likely it is.

These are the top 20% of borrowers in Australia. These are the least likely (highly unlikely) to experience an adverse event that may harm their credit file in the next 12 months.

According to Equifax – people with a Very Good score are twice as likely as those with a score in the AVERAGE range to experience an adverse event that will harm their credit file in the next 12 months.

It stands to reason that consumers in this range are more likely to keep a clean credit report in the next 12 months and are less likely than average and below-average to experience an adverse event that will harm their credit file in the next 12 months

Consumers in this range are likely to experience an adverse event that will harm their credit file in the next 12 months. These adverse events could include a default, bankruptcy or court judgement in the next 12 months.

Consumers in this range are highly likely to experience an adverse event that will harm their credit file in the next 12 months. Similar to average scores, this band of people are likely to experience a default, bankruptcy or court judgement in the next 12 months.

What if I have a bad credit score?

Some lenders will not lend to people with a score below a certain threshold. This is why it is important to use a broker. A Good Broker will check your score first rather than just apply and hope for the best without affecting your credit file!

If your score is lower, a Good Broker knows where they can send the loan and who is likely to approve it based on all of your circumstances. It’s important to understand that if you have a bad credit score, it’s not for no reason! You may think that another loan is going to help you out of trouble, whereas budgeting and paying your existing bills on time of completely paid off should be your goal.

Seeking the assistance of a financial counsellor may be a great start for you if you are trapped in debt.

Things that affect your score positively

It seems simple but paying your bills on time or early in the full amount will positively affect your score.

Not applying for too many loans in a short period also assists along with keeping your debt to credit ratio as low as possible. This could mean lowering your credit card balances/limits and also paying them off each month will help immensely.

Of course, regularly checking your credit file (at least once per year) to ensure there are no errors on your file is also really important.

Things that affect your score negatively

It stands to reason the opposite applies to positive conduct. Missing payments, not paying bills in full or on time, maxing your credit limit, having court judgments or clearouts, making multiple credit applications in a short period of time are all things that can negatively affect your score.

Not checking your file regularly will also mean you don’t pick up on any errors that may be on your file, or even worse, ignoring errors or inaccurate entries on your file

Improving your score

Basically, using the recipe above to positively affect your credit score is a great start. It will take time but your score will gradually improve.

One of the biggest mistakes that people make when they get into trouble financially due to tough or unforeseen circumstances is not contacting their lender to talk about it. Putting payment arrangements in place or even having a payment hold for a period could help you immensely and keep your relationship strong with your current lenders for when you exit the circumstances.

How to check your score

The first thing to do is run your credit file. You can get this for free through a variety of credit reporting agencies:

Equifax

https://www.equifax.com.au/personal/

Experian

http://www.experian.com.au/order-credit-report/

Illion

https://www.checkyourcredit.com.au/

If you find errors or inaccuracies, you should get in touch with the credit reporting agency to see if it can be rectified. Fixes can take time to appear on your file, so don’t expect it to happen overnight. Your broker will also be able to provide you some guidance in this regard.

Journey Finance credit check

Journey Finance as part of our process will run your credit score. If you are looking for a loan, we can do this work for you and provide you this for as little as $19.95 or free if your loan goes through us. Contact us today.

Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.