Every individual has a credit file but very few know exactly what it contains. From the 12th of March, changes are being made to the way credit files are presented and the information they contain.
We are moving to a credit reporting system that is similar to what occurs in the US and which we consider is a positive change. However the changes will impact on your ability to qualify for finance in different ways to the previous system. We think that it’s important for all potential borrowers to be aware of what’s changed and how the new system works.
From Negative to Positive!
Previously, credit files only showed negative items on your credit report. Things such as defaults, judgements, bankruptcy events, directorships, associated businesses and credit enquiries were the things that you would usually find. It had no details as to the status of whether any of the enquiries proceeded; the status or history of any loans that you may have; and to the conduct of your credit.
Now your credit report will show your repayment history, so if you have made your repayments on time then this will be seen in a positive light. The credit report will also show what finance enquiries were approved and currently in place and what enquiries were just that – an enquiry.
So What Does your Credit File Now Show?
Your credit file now contains information about you such as:
- Full name (and previous names)
- Current and past addresses
- Date of birth
- Driver’s Licence Number
- Employment information
- The current limit on your credit card/s (this can impact your servicing with loans – see below)
- Repayment History information from the past two years (see below)
- Any credit enquiries made in the past 5 years and whether they were approved or declined (see below for a definition of a credit enquiry)
- Any defaults or serious credit infringements you have or have had (see below)
- Any company you are a Director or of (or have been a Director of)
NB: Your credit file does not contain any information relating the ethnicity, religious affiliations, country of birth, family details (ie. Partner’s name and children’s details) and telephone/email details.
Why is Your Credit File Important?
Your credit file can tell lenders or credit services a lot about you – positive and negative. If you have a credit file that has defaults and late repayments the lender/credit provider will be very hesitant to offer you finance. In addition, many lenders put you details into a computer for a credit scoring which measures not only defaults and late repayments but also how many enquiries you have made in the past five years. Too many (even if finance did not go ahead) and you get a poor rating and finance will be rejected.
So, keeping your credit file clean is essential if you want to gain finance now or in the future. The best way to keep your file “clean” is to do the following:
- Make sure you make all of your repayments on time.
- When you move change your address details immediately and follow up on outstanding accounts with the company
- Don’t do searches and request quotes for finance on-line (it could be recorded which could negatively affect your file)
- Don’t shop around with credit providers and put in applications to see what they say – this will all be recorded and too many enquiries can squash any chance of getting finance.
(See the article Can Shopping Around for Finance Affect your Credit File for more information)
How Will My Credit Card Limits Affect My File?
When you apply for finance the lender will put all of your information into a servicing calculator to see if you are able to afford the finance based on your income and expenditures. One of these expenditures listed is your credit card/s. Even if you don’t owe anything on your card, the lender will take 30% of the credit card limit and put that into your expenses.
If you have a few credit cards and they all have large limits (say over $5000) then this will heavily impact your servicing. So, only keep the credit cards you truly need and keep the limits to a minimum. You can no longer “hide” some of your credit cards from lenders. The cards you have and the limits will now show on your credit report.
How long is information held on my credit file?
This varies depending upon the type of information. Some examples are set out below:
- Credit enquiries are for 5 years
- Clearout information is held 7 years regardless of whether it was subsequently paid.
- Seriously credit infringements are held for 7 years unless they are paid at which time they are either updated to a payment default or removed entirely.
- Court Judgments are held for 5 years
- Queensland and WA Writ and summons are held on Company/Business & Individual files for 4 years.
- Bankruptcy Act information is held for a maximum of 7 years
So, even if an infringement or default is paid out is still may show on your credit file. Lenders/credit providers will look at the amount and how long it took to pay the amount and/or settle the dispute.
What if I don’t agree with a default listed on my credit report?
If you have something recorded on your credit report that needs updating or you believe is incorrect the first step is to contact the credit provider (see this comprehensive list) http://www.mycreditfile.com.au/support/customer-contact-directory.dot
If this doesn’t produce the result you believe should be reached you may contact Veda (see below) and request a review into your file. From there Veda will guide you as to what to do next. http://www.mycreditfile.com.au/support/
Can I access my credit file?
You can access your credit file. There is a cost involved but allows you to see what is on your file. Below is a link where alerts can come your way if your file is accessed.
Consumer Credit: Consumer Credit is any credit that you apply for, for personal, family or household purposes or to acquire, maintain, renovate or improve a residential investment property or to refinance a residential investment property. (e.g. mobile phone, mortgage, personal loan, credit card).
Repayment History information: This is information about whether an individual has made their repayment on time on a month by month basis for a period of 2 years. If not, it provides an indicator of how late the individual was in making that month’s payment.
Defaults: A default is an overdue debt that is more than 60 days or more in arrears and the organisation that listed the overdue debt has commenced collection action. Only debts equal to or greater than $150 are held by Veda.
Serious infringements: Where a lender has taken reasonable steps to contact the individual re: a default and at least 6 months has passed since the lender had last contact with the individual.
If you are having difficulties making your repayments on time then contact us. Also, read the following article to find out more about Debt Consolidation
Contact us if you would like to find out more or to discuss your finance options.
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