Your credit report is the key to getting a loan or credit card. Here is what you should know about your credit report and how to keep it clean.

What is a credit report?

Your credit report is a file maintained by a credit reporting agency which contains details of your borrowing and payment history. Banks and credit card issuers check your file when they work out whether or not to lend to you or issue you a credit card. There are strict laws governing the operation of credit databases.

So what goes in my file?

Your credit report includes information that helps identify you:

  • name and any known aliases
  • gender
  • date of birth
  • addresses (current and last known and two immediately previous addresses)
  • current or last known employer
  • driver's licence number

Your file cannot include any information about your race or ethnic origin, political, social or religious beliefs or memberships; any criminal record; your medical history or physical handicaps; sexual preferences or practices; or lifestyle, character or reputation.

Most importantly, your file also includes:

  • a record of any credit provider who has made an enquiry about you
  • information about any defaults – money you owe that is 60 days or more overdue and the provider has tried unsuccessfully to collect the amount outstanding.
  • any court judgments and bankruptcy orders made against you

What is a default?

A default is a debt (for example a credit card payment, loan payment, phone or utility bill) of $150 or more that is 60 days or more overdue. If the creditor has made an attempt to recover it from you, they can lodge an entry on your credit file after they have warned you that they intend to.

This can happen if you move house and haven’t told the company. I see this often with bills like phone and power; when people move out of a shared house and don't settle the account or transfer it to someone else at that property. A default will stay on your report for 5 years even if you subsequently pay it.

What is a serious credit infringement?

These are more serious and stay on your file for 7 years even after the debt has been paid. They occur when a credit provider cannot locate you because you have left your last known address without paying that debt and did not provide a new address.

A credit provider can list a serious credit infringement for a debt where they have listed it as a default and despite a number of attempts have been unable to contact you for 6 months. If you subsequently pay the debt, the record will revert to a default and will remain on the report for five years. The fact that your account has become overdue and then been paid becomes part of your credit history.

Recent Changes to what’s on your file

Until recently, your credit file only included negative information – what credit you applied for and when you haven’t paid. From 12 March 2014 additional positive information may be be included such as:

  • type of account (credit card, home loan or personal loan)
  • date the account was opened or closed
  • credit limit
  • payment history which will show whether you made your payments on-time.

What does this mean if I want to borrow money?

When a lender assesses an application for credit they focus on defaults, judgments and serious infringements. A paid default of less than $500 will usually not do too much damage if you have a good explanation. Lenders usually recognise that these can happen due to administrative errors.

On the other hand an unpaid default, serious infringement or judgement usually means you need to approach a so-called non-conforming lender. This will limit how much you can borrow (usually no more than 80% of the purchase price of a home for example) and it comes with higher interest rates and fees.

A number of credit enquiries in a short period will also limit your ability to borrow. Shopping around for a loan is good, but multiple applications can affect your credit report. Use a good broker to help.

Who can see my file?

You are entitled to see what’s on your file. You can get a free copy once a year or you can pay to have more frequent access. Get a free copy of your credit report here.

You can also nominate someone to access your information. Credit providers (Banks, credit card issuers, telephone companies etc) can access other people’s reports and only for the purposes of assessing an application for credit or in connection with collecting overdue payments. Law enforcement authorities can also get access in connection with a serious credit infringement believed to have been committed by the individual concerned.

What do I do if something is wrong on my report?

You are entitled to have your report corrected. You need to make sure that the information in your report is accurate, up-to-date, complete and not misleading. The file or report is protected by security safeguards to prevent against loss, unauthorised access, use, modification, disclosure and against other misuse. Also credit providers to whom information is disclosed have measures in place to prevent unauthorised use or disclosure of the personal information contained in the file or report.

Can Credit Repair Companies really remove defaults from my file?

A credit repair company is generally not able to do anything to repair your file that you aren’t entitled to do yourself. Beware of operators who prey on people in financial difficulty with big promises of repairing defaults.

There are strict protocols that must be followed before a credit provider can lodge a default on your file. If these have not been followed or the report is otherwise incorrect you are entitled to have it removed for free.

Sherpa Says: Get a copy of your file at least once a year and check that it is correct.  A strange entry on your file is often the first sign of identity theft.

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Vince Scully | LifeSherpa

With over 25 years in Financial Services from consulting to management, Vince Scully is the go-to guy for wealth management and financial advice. Before creating LifeSherpa, Vince founded the Calliva Group; a fund manager, product issuer, adviser and lender. Vince is an adviser to the Wealth Management Industry, and prior to his role as CEO at Calliva, a senior member of Macquarie Bank’s infrastructure team.

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