My Credit File Explained
Credit files seem to carry a lot of associated mystery and misinformation. This is because most people have never seen their own credit file and don’t know what is on it. Most of the information most people get about credit files is written out of the US, which has a completely different system.
Your credit file is a record of information that creditors think is relevant for assessing you for credit. It is kept by a credit reporting bureau; in Australia this is Equifax (formally Veda Advantage). However, what information can be kept is strictly covered by Australian privacy laws. The amount of information in our credit file is substantially less than in the US; in fact, most people will be surprised by how little information is in their credit file.
Negative Credit Reporting File
The best way to think about your credit file is like a criminal record. It only lists the bad things that you’ve done (default or court action). It doesn’t list your good behaviour. For example, a criminal record will have the murder but not the years of charity work. Just like a criminal history, the best thing you can have on your credit file is nothing.
Credit File Repair
Just like a criminal record, you cannot repair a bad credit file. No amount of charity work is going to get that conviction to go away. In the same way, getting a new debt and having a good payment history won’t repair your bad credit file. Paying an overdue debt will not remove it from your credit file. The only thing that will remove a debt from your credit file is time. Unlike criminal records, a credit file is not permanent; they only cover the past seven years and some offences are only on your credit file for five years.
What information is stored on your credit file?
Residential addresses history (this is updated every time you make an application for credit, so it’s not a complete record);
Date of Birth;
Drivers licence number; and
Employment history (this is updated every time you make an application for credit, so it’s not a complete record);
Credit Enquiries (lasts for five years):
Recorded every time you enquire about getting credit.
Records of some current credit accounts (lasts for five years):
Some creditors will update their enquiry to show if it was approved; most creditors do not.
Overdue accounts (lasts for five years):
If you fall more that 60 days behind with a debt, your creditor can list this on your credit history. These are listed as defaults, or if you pay the debts, they are listed as paid defaults.
If you changed your address and phone number without telling your creditors, a default may be listed as a Clear Out. This is considered a more serious offence, as it is seen that you deliberately avoided paying the debt, and is listed for seven years.
Bankruptcy Act information (lasts for five years)
Court Judgements and Writ & Summons (lasts for 5 years)
Directorships and Proprietorships (Currently Listed).
What information is missing from your credit file?
- No record of your payment histories!
- No record of what debts you currently have or have already successfully managed.
- No record of your credit limits on your credit cards.
What information do creditors look at when assessing my credit file?
Bankruptcy Act Information
- This is the first thing creditors look at. If you have a bankruptcy, debt agreement or personal insolvency agreement recorded, discharged or undishcharged, the application will be turned down. After five years, this is no longer recorded on your credit history.
Judgements, Writs and Summons
- The next thing creditors will look at is any recorded legal action by other creditors. If anything is notated in these sections, you will be turned down. It doesn’t matter if it is paid or unpaid. After five years, creditor legal actions are no longer recorded on your credit history.
- If there are any defaults or paid defaults, creditors will turn down your application. Paying a default does not remove it from your credit history and will not improve your credit history.
- If you have made a lot of enquires (e.g. more than one every six months), then your application for credit will usually be turned down. Since there is no way of actually identifying which of the these applications for credit were approved, it is impossible for a creditor to accurately assess your financial position. You potentially could have many debts that you are hiding. A record of many enquires can also make it look like you are desperate for money.
It is important for you to understand that creditors do not have an endless supply of money to lend. They stay in business through people repaying them. Creditors needs to be certain that you present a low risk for them to lend money to you. If you have any negative reporting information, such as declaring bankruptcy, judgements, writs, defaults, or frequent enquiries on your credit history, you are automatically considered as a high risk and will be turned down for financing.
What can I do about my bad credit history?
You can’t do anything to fix your bad credit history apart from waiting for the information to expire. Paying off defaults and judgements will not remove them from your credit history; however, taking this action will prevent creditors from taking legal action against you.
What can I do if there is a mistake on my credit history?
If you believe that there is a genuine mistake with your credit history, then you need to discuss the matter with the creditor who has listed you. Equifax can not remove the information. The creditor needs to notify them that the notation was listed in error, and then it will be removed.
Can I get a debt consolidation loan if I have bad credit?
If you have a bad credit history and have outstanding debts, you will not be able to get a debt consolidation loan. Lenders classify you as a high risk. The debt agreement and personal insolvency agreement are options available for you if you have a bad credit history. They are a flexible way for you to repay your creditors and will enable you to keep track of and make only one regular payment.
There are fringe lenders who do provide finance for people with bad credit. Their interest rates are much higher to offset the high risk while they increase the real cost of funding. There are generally three types of bad credit loans:
- home loans (non-conforming loans, sub-prime mortgages);
- car loans; and
- payday loans.
Non-Conforming loans (i.e. home Loans) generally allow people with bad credit to use the equity in their property to consolidate debt.
Obtaining a car loan with a bad credit history, however, usually causes the interest rates to be much higher. Generally, you will have to purchase a vehicle from the lender at an inflated price to qualify for the loan.
Pay day loans have recently received a lot of bad press. The Queensland Government has recently capped the interest rates that these lenders can charge, and other states are sure to follow. Pay day loans are generally for small amounts (less that $3000), have higher interest rates up to a maximum of 48% p.a. (in Queensland), and shorter terms.
How do you get your credit history?
For more information, you can go to our page that shows you how to get a free credit history report.