How Does Your Credit Report Affect You?
What Is A Credit Report?
A Credit Report is a record of selected bits of personal information that creditors use to assess the credit worthiness of an individual. Different countries have different rules as to what can and cannot be listed inside someone’s Credit Report. Australia has a completely different credit system in place than the United States. A clear distinction must be made between the two because most of the information people receive about credit is from the US. This is not very applicable to citizens of Australia.
While there are clear similarities, the differences are significant enough to create a lot of confusion among most people. It doesn’t help that few people have ever seen a copy of their own credit report. People make assumptions based on misinformation that might be correct in the US but is just wrong in Australia.
Credit Reports In Australia
Australia limits the kind of credit information that can be reported because of strict privacy laws. We have different time spans than the US for which information can remain inside our credit bureau files. The credit reporting bureau is called Veda Advantage here. Compared to other countries the amount of information contained within these files is surprisingly small. All the information gathered concerns problems associated with your credit history.
Credit Reports in Australia are like criminal records that can expire given enough time. Only bad things are listed. Anything good is simply not reported. It’s sort of like having a suspended sentence for car theft whereby the record is expunged after seven years if you demonstrate good behavior.
Repairing A Credit Report
A bad Credit Report cannot be repaired. It only heals with time as the troublesome information drops off the list when legal limits for retaining it pass. Just as community or charity work won’t make a criminal conviction go away, a good payment history on new debt will not change a defective Credit Report. Once an overdue payment is reported, meeting your legal obligation to pay the bill will not clear the mark on your record.
Information retained in your Credit Report is temporary. The maximum amount of time that any injurious data can still legally show up inside the credit report is seven years. Less offensive problems can be expunged within five years. It will simply fall off the record.
Correcting Genuine Mistakes
If you should find an error within your Credit Report, you cannot correct it through Veda Advantage. The credit bureau cannot correct any mistake, unless the source of new information comes directly from the creditor in question. Your only option is to point the error out to the entity that reported the faulty information to the credit bureau. You must convince the creditor of the error. They in turn notify Veda Advantage that the notation in the Credit Report was inaccurate. Then and only then the mistake will be removed.
Information Stored within your Credit Report
- Personal Data:
- Partial address history (completeness depends upon information given within credit applications)
- Date of Birth
- Driver’s License Number
- Employment history as disclosed from past credit applications
- Number and date of Enquiries (over the last five years) When you attempt to get credit, this is recorded.
- Indications of some current credit accounts (depends on whether a creditor decides to update an enquiry and reveal that a line of credit was approved) Most creditors do not do this.
- Overdue accounts (over the last five years)
- These are debts past due for sixty or more days. They are listed as defaults. If they are eventually paid, then they are listed as paid defaults.
- Clear Out (listed for over the last seven years) is considered a serious event. This happens when change of address and new phone numbers are not given to the creditor. The intent is assumed to be deliberate avoidance of paying the debt.
- Information Under the Bankruptcy Act (over last seven years)
- Application for a Debt Agreement, Personal Insolvency or Bankruptcy
- Discharge through a Debt Agreement, Personal Insolvency Agreement or bankruptcy
- Court Judgments, Writs and Summons (over the last five years)
- Directorships and Proprietorships (current)
Information Not in Credit Report
Your Credit Report does not include any of your payment histories. There are no records of debt amounts you currently have. Nor are there any past debts revealed, unless there is a serious problem. Credit card limits are not listed.
Which information is most important to creditors?
Creditors first focus their attention on any annotation under the Bankruptcy Act. This includes Bankruptcy, Debt Agreement or any Personal Insolvency. It won’t matter whether it is discharged or not. If a reference is made in this section, the credit application will be denied. This will remain on your credit history for seven years.
The second section creditors focus on will be Judgments, Writs and Summons. Any legal action by any creditor will be grounds to deny credit. It does not matter whether the balance was eventually paid. The mark will remain for five years on your credit history.
Thirdly, creditors keep an eye out for any overdue accounts. These are revealed as either Defaults or Paid Defaults. As this means payments were at least 60 days overdue, any reputable creditor will turn down the application. Paying the debt at this point will not improve credit history or give you a greater chance of being approved.
Creditors also look carefully at Enquiries. More than one enquiry every six months is considered too many. Since there is no way of knowing which if any application was approved, there is no basis to assess your real financial situation. The creditors assume that you have hidden debts or you are desperate for money.
Creditors limit risk. They only remain in business when people repay their debts. They have to make sure you are likely to make timely payment so that they can make money. Any reference to bankruptcy, judgment, writ, default, and frequent enquiry is a decent indicator that you are a high risk client. Financial assistance will be automatically denied.
Bad Credit History has Consequences
There is nothing you can do to fix a flawed credit history, except wait for the listed item to expire. Paying obligations once they are in default will not improve your credit history. The reason to go ahead and pay these overdue bills is to prevent legal action being taken against you.
Debt Consolidation Loans & Bad Credit
A high risk classification will prevent you from getting a debt consolidation loan. However, people with outstanding debts and a bad credit history still have the options of a Debt Agreement or Personal Insolvency Agreement. This gives you flexibility of one regular payment to your creditors.
How can I get a loan with bad credit?
Marginal or fringe lenders will finance people with bad credit for much higher interest rates. The increased rates are necessary to offset the costs associated with funding high risk situations. Three bad credit loan types include:
- Home loans (sub-prime mortgages and non-conforming loans)
- Car loans
- Payday loans
Non-conforming loans are home loans that allow people with bad credit histories to use their equity in their property as a way to consolidate their debt. High interest car loans with bad credit are possible when the vehicle is purchased at a higher than normal price.
Payday loans are dubious because the interest rates tend to be astronomical. These have gotten such bad press that Queensland Government recently limited the maximum interest rates that lenders can legally charge. Small loans of less than $3000 and high interest rates of a maximum of 48% p.a. (in Queensland) are considered this type of payday loans. They normally have much shorter terms than other loans.