Many Australians don’t pay much attention to what their credit looks like until it’s too late. So many borrowers never even consider their credit rating until it’s time to apply for a major loan, like a mortgage or a car financing line of credit. This is the wrong thing to do, since your credit rating [...]
Credit Rating Australia
A good credit rating along with a steady income is a key factor in gaining access to loans and credit cards. Bad credit can have a negative impact on your ability to purchase a home and can even make it difficult to find a place to rent.
In order to establish a good credit history, you must understand how the credit rating system works.
How do rating agencies determine your credit rating?
In Australia, a person’s credit file is maintained by the Veda Advantage agency. Whenever a person defaults on a loan or files bankruptcy, the information is recorded in that person’s credit history. Every loan application and all your financial obligations are included in this file.
The credit file itself does not assign any credit rating to the individual. However, banks and other lenders use their own methodologies to convert the raw data from personal credit files into credit ratings.
How is my credit record used?
When you apply for any type of loan or financing, including credit cards, the bank or other lending institution has the right to check your credit history.
Lenders examine the credit files to determine how much risk is involved in loaning money to the applicant. They will check to see how reliably you have repaid your loans and credit cards, whether you have previously filed for bankruptcy, and whether you may have an excessive debt burden.
What exactly is included in my credit file?
The Veda credit history compiles the following information:
- Credit applications – A record of each application including type and amount is included along with all enquiries made over the last five years.
- Credit accounts – Information on all current and open accounts.
- Judgements – A record of all judgments and any other information contained in your public record.
- Bankruptcy – Any bankruptcy that you have filed for is included in the credit file.
- Personal information — Information including your name, address, date of birth, driver’s license and other details.
How long is potentially damaging information kept in credit file?
Details on credit applications, defaults, overdue accounts, summons and judgments are retained in your credit report for five years. Bankruptcy information is kept for seven years.
Personal information is retained permanently while out of date details will be updated every month.
Harmful effects of bad credit
When you have a negative credit rating, you will generally have a difficult time when you need to borrow money. You may not be able to qualify for a loan at all, or you may only qualify for a loan with a higher interest rate. For home loans, you may have to make a greater deposit in order to qualify.
Credit card companies may reject your application or may only allow you to receive cards with lower credit limits, and higher interest rates and fees. Some credit card companies may require that you have deposits to cover all or part of your credit.
Generally, the reasons most likely to result in your application’s rejection are overdue accounts or defaults, fraudulent use of your credit card, and incorrect information in your credit file.
Depending on when the bad credit information entered your personal file, it can take up to five to seven years to clear these impediments in obtaining financing and credit cards.
What are the benefits of good credit?
When you have a good credit history, you will generally enjoy rapid approval of your credit card applications. Your credit card terms including your upper borrowing limits, interest rate and other repayment terms will generally be favourable compared to the terms available for those with bad credit.
What can I do about my credit history?
You can view your credit report by ordering a copy of the records from Veda at their website: https://services.au.vedaadvantage.com/ (fee required).
Note again that no actual credit rating is included in this file. However, you will be able to see exactly what a lender would see upon examining your file. Take into account the condition of the economy when studying your credit record. In tough economic times, lenders are generally stricter when it comes to extending credit.
If you have bad marks on your record, check to see when these will expire. Also, look for any inaccuracies in the report. You have the right to repair your credit record by correcting any mistakes and inaccuracies in your file. For example, there may be a record of a late payment in which you actually made the payment on time.
In order to repair your credit history, you must organise all your financial records and carefully go through every detail of the credit record. Unfortunately, in Australia only negative marks are considered in determining your credit rating. So paying off existing loans will not help in improving your credit.
Can a credit repair agency help?
Credit repair agencies use their expertise and experience to help you improve your credit rating. They can help with all aspects of the process from obtaining a copy of your credit file to comparing your records with the file in great detail.