By Kirsty Lamont
You may not check it as frequently as your bank balance, or spend as much time worrying about it as you do your credit card bill, but your credit report is still a vitally important part of your overall financial picture.
It’s this report that credit providers – like banks and utility companies – look at when assessing you for a loan. Nothing else reveals quite as much to potential creditors about your financial health and history. So if you’re ever going to need a loan (and that’s pretty much all of us), take these steps now to ensure your credit report gives a good account of you later.
You can’t fix what you’ve never seen. So get in touch with one of the two major credit agencies in Australia (Dun & Bradstreet and Veda Advantage) and see what your credit report looks like. Getting a copy is usually free, and it’s a highly worthwhile exercise. Especially if you are about to apply for a big loan, you should make sure your credit record is pristine.
Once you’ve got your hands on your report, check it thoroughly for any irregularities. In this day and age there’s always a possibility that someone could have been fraudulently using your identity to apply for loans or to apply for a credit card. Unless you do check your credit report every now and again this stuff can go on without you even knowing.
Unfortunately, the only thing that will erase red marks on your credit report is time. Any defaults (an amount of $100 or more that was paid more than 60 days late, or is still outstanding), court judgments, writs or summons, credit enquiries and details of some credit accounts will stay on your file for five years. Bankruptcy or “Clearout” (where you change your contact details without telling your credit provider, so it appears you’re trying to dodge the debt) records remain on your file for seven years.
Nevertheless, if you see something in your credit report that you disagree with or think is wrong, take it up with your credit agency.
Even though there’s nothing you can do to instantly fix your credit score, your future self will thank you if you start building better credit now. Set up automatic bill payments to avoid late payments, and reduce the number of accounts and cards you have.
Work on reducing your debt-to-credit ratio (i.e. having $4000 owing on a $5000 credit card is worse than having $4000 owing on a $10,000 credit card), using balance transfer if you have to. Don’t switch accounts too often, either, as it’s good to be able to show a lengthy credit history.
When you do apply for credit, do your homework first – every new credit enquiry is noted on your credit report, so keep it as clean as possible
Be aware that privacy laws have recently changed. From the beginning of next year, banks and other loan institutions will have access to data relating to your repayment history as part of your credit report – meaning late payment of bills could affect your credit rating.
This data is already being collected – it began in December last year – and will be used by credit providers to determine whether you’re eligible for a loan. So it’s now more important than ever to ensure you always pay your credit card and home loan bills on time, or else you could be affecting your ability to get a loan or another credit card in the future.
Kirsty Lamont is a director of Mozo.com.au which helps Australians compare savings accounts, credit cards, insurance and other financial products. Kirsty was one of the launch team for Virgin Money when it started in Australia in 2003, and also held a senior role at BankWest before joining Mozo in 2007. A consumer finance expert, she has access to Mozo’s up-to-the-minute data about different financial products on offer.
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