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Credit rating myths busted

With the introduction of mandatory Comprehensive Credit Reporting for the big four banks from 1 July 2018, it’s more important than ever to know what’s going on with your credit score. Find out just what a credit score is all about and what to do if you run into problems with yours.

What is a credit score?

Also known as your credit rating, your credit score is based on a report lenders request when you apply for a loan or credit card in your name only, or together with someone else. From store cards to home loans, your credit score is used by lenders to decide whether you can borrow money, how much and on what terms.

How do I check my credit score?

Your credit score or rating is a single number based on information held by a credit agency. There are currently three credit agencies in Australia, Equifax, Experian and Dun & Bradstreet and you may have different information on file with each of these. So if you want to be certain of your current rating, you need to check with all three agencies to be completely in the picture. Each agency will provide you with a free current credit report once a year, usually within 10 business days.

You can use the following online services to request your credit report:

If you’re concerned that checking the information these agencies have on record about your credit history will actually affect your score, don’t be. It’s actually a good idea to check on your credit rating from time to time. It can help you to become aware of how your score could affect future loan or credit applications. It’s also a good way to protect yourself against identity theft or fraud. If someone has used your personal details to apply for credit you may not know about it without checking your credit report.

What sort of information is my credit score based on?

In the past your credit score was based on negative information only. With new legislation effective from 1 July 2018, comprehensive credit reporting (also called positive credit reporting) has become mandatory for the big four banks. This means NAB, ANZ, Westpac and Commbank will be required to provide extra information for your credit report. According to ASIC’s MoneySmart website, these extra details include:

  • What sort of credit products you have held in the last 2 years and who they are held with

  • Your usual repayment amount

  • How often you make repayments and if you make them by the due date

The aim of this new requirement is to enable lenders to make more informed decisions about providing loans and credit. However, it may also mean your credit score goes up or down as a result, so now is a good time to check your current rating.

Your credit report and rating will continue to be based on the following details of your financial history:

  • Credit or bill payment defaults – where a payment greater than $150 is more than 60 days overdue and a debt recovery process has begun. These will stay on your credit report for 5 years, even after they have been paid in full.

  • Clearouts – cases where a credit provider has been unable to contact you to request payment. These will stay on your credit report for 7 years.

  • Other overdue payments that you’ve since settled.

  • Credit cards in your name and your credit limit on each card

  • Credit applications you’ve made for store/credit cards and loans – including the name of any joint applicants

  • Bankruptcy, court judgments, debt or personal insolvency agreements

  • Which credit providers have requested a copy of your report and the dates of these requests.

Your history of paying your bills – utilities, mobile phone etc. is not included in your credit report or taken into account for your credit score. Missed payments will only be recorded if they’ve been outstanding for more than 60 days.

What’s a good credit score?

Credit ratings are sorted into the following bands:

  • Excellent: 833 – 1,200

  • Very Good: 726 – 832

  • Good: 622 – 725

  • Average: 510 – 621

  • Below Average: 0 – 509

An excellent credit score isn’t carte blanche to borrow as much money as you like. Lenders will be looking at how affordable a loan or credit limit is for you, as well as your credit history.

Similarly, an average score won’t necessarily mean being turned down for a loan altogether. But it could mean you’ll be expected to pay a higher rate of interest or comply with other loan terms.

What can I do to keep my credit score high?

There are a number of things that can help you keep your credit rating up in the higher bands:

  • Staying up to date on all your loan, credit card and bill payments

  • Clearing as much of your outstanding debt as you can – keep your credit card balance low, or at zero

  • Keeping applications for loans or credit cards to a minimum

  • Using balance transfer offers on a new credit card wisely – if you don’t repay the balance within the promotional interest rate period, this can affect your credit score

  • Reducing your credit card limits and consolidating debts

Can I ‘fix’ my credit score?

If you check your credit history and find that there’s incorrect information included, contact the relevant creditor for it to be changed or removed. Should you have further problems getting an issue resolved, you can contact the relevant Ombudsman for the type of credit or service provider. If this doesn’t get you anywhere, lodge a complaint with the Office of the Australian Information Commissioner (OAIC).

Credit repair companies can also offer help you resolve issues with incorrect credit information on your report. However, both MoneySmart and CreditSmart warn against handing over money to these companies when they promise to ‘clean up’ your credit rating. All they’re doing is getting incorrect information updated on your credit report, which you can do yourself for free. They’re not able to remove any genuine defaults or negative information from your credit history so be sure you know what you’re paying for before engaging a credit repair service.

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