Most Australians are only vaguely aware – or completely unaware – of the fact that credit-reporting agencies monitor their financial transactions.
While most Australians don’t give much thought to what’s on their credit report, the credit score that’s based on the contents of that report can have a significant impact on your financial choices. A modest score may mean you miss out on getting a mortgage or business loan.
There’s no shame in relying heavily on your credit card or delaying bill or loan payments to help ride out the financial impacts of the pandemic. However, it is worth understanding how the financial decisions you’re making can affect your creditworthiness.
Know the score
Australia’s credit reporting agencies make it as easy as possible for people to access their credit scores. You should be able to get a free copy of your consumer credit report by contacting the relevant credit-reporting agency or putting in a request via its website.i
The two big players in the credit-reporting industry are Equifax and Experian, but Illion may also have a ‘consumer credit report’ on you. If you’re based in the Apple Isle, the Tasmanian Collection Service will be keeping an eye on whether you’re paying your bills.
Credit scores range from 1 to 1000 or 1200, depending on the agency rating it. If you discover your score is around 500 or better (again, depending on the agency) you can take comfort in the knowledge you’re of above-average creditworthiness. If your score is lower, there are some simple remedies.
Credit repair 101
While credit reporting agencies guard the finer details of their credit-score calculations, they are transparent about what will cause people’s credit score to fall and what is required to rectify the situation.
Here’s what you need to do to boost your creditworthiness.
Sort out any unpaid bills
People often discover unpaid bills – the technical term is ‘delinquencies’ – on their credit report that they either didn’t know existed or which they assumed were ancient history and covered by a statute of limitations.
If you’ve been wrongly charged for something, act quickly to get the charge removed. Start by contacting the business that has mistakenly billed you. If that doesn’t resolve the issue, contact the credit reporting agency.
If you’ve been legitimately charged but didn’t get the bill or were unable to pay it, contact the creditor and negotiate repayment arrangements.
Stop applying for credit
In the current unpredictable environment, it can be comforting to know you have access to plentiful credit in an emergency. But credit agencies view multiple applications for credit in a short period of time as a sign of financial distress, so think twice about applying for another credit or store card. Even if you don’t ever get the card, the fact you’ve enquired about doing so is listed on your credit file.
On this point, it’s worth considering alternative options before applying for credit. While applying for JobKeeper or JobSeeker, or withdrawing money from your super account, may have other financial implications, your credit score won’t be impacted.ii
Don’t put off paying bills for too long
The Australian Banking Association recently announced that borrowers who have deferred bank loans will not have their credit rating affected until at least March 2021.iii That’s welcome news, but don’t assume all companies will be as generous.
Unless the business you owe money to has put in place other arrangements, if they send you a bill for $150 or more and you don’t pay it off within 60 days of the due date, your late or missing payment will stay on your credit report for the next five years.
Get on the front foot
Even if you think you’ve been careful in your spending, debts can quickly mount up or get lost in the bottom of a drawer, so it’s worth getting into the habit of checking your credit score from time to time just to be sure.
This is particularly important if you are hoping to borrow money to buy a home, start a business, or for a major purchase. If you’d like advice about getting your finances back into shape and maximising your ability to access credit in the future, please call.