Article by Cheryl McKenna – Office manager, licensed estate agent – and now we can add – real estate blogger!
Back in my day, credit was something you needed to make a call on your mobile, or a score that my friends got at uni. And having multiple store and credit cards meant that you were pretty damn cool – especially when they came in so many different colours. And why not get a loan for a new car??? You can afford the repayments, and you only live once right?
But then, one day when you get all grown up and decide it’s time to saddle yourself with a nice shiny, new mortgage you realise why your parents tried to talk you out of most of those decisions. They DID know what they were talking about after all.
Your credit file records most of your dealings with credit providers and contains information that may be used as part of assessing other credit applications that you make. A credit report is a report of the information in your credit file.
If you have applied for any of the following, you will no doubt have a credit file –
Credit card, personal loan, interest -free loan at stores, mobile phone plan, store cards, mortgage.
Your credit file is the equivalent of a parent-teacher interview about how you went with that credit. Ie Johnny started off with much enthusiasm making payments on time, but over the term he lost motivation and focus with a number of payments becoming overdue and incurring late fees. He started the year on track for an A, but ended with a D. If Johnny doesn’t pull his socks up he is in danger of failing this term.
How does that look for Johnny when he is trying to get his parents to move him to the new school that his mates go to?
Now Jenny, she is a different kettle of fish! Her interview went a little like this.
Jenny? Oh, that girl that sits quietly in the middle of the class, who always does her work on time to a great standard, who we never hear from? She started as she meant to continue, diligent, on time with anything due and completes everything in full, every time.
THAT is the kind of credit rating you want – be Jenny, not Johnny.
So what is actually in your credit file?
A credit file is made up of three components – the consumer credit information, commercial credit information and public record. The last two relate to business dealings mainly, so let’s have a look at consumer credit info.
The consumer credit info on your credit file may include:
- Credit enquiries or applications you have made in the last 5 years
- Current credit providers, or who you currently have loans or credit through, including mobile phone accounts, electricity accounts etc
- Details of any overdue debts that are 60 days or more overdue or debts that have been classified as serious credit infringements
- Authorised agent enquiries. This is where an agent acting on your behalf has made an enquiry
- The type of credit account ie a credit card or personal loan
- Credit limit. This is the maximum amount of credit available to you.
- Monthly repayment history on credit accounts such as mortgages or credit cards. This will reflect whether you paid the minimum amount required on your financial commitments each month on time or not
How can I improve my credit file?
Check your credit file! Make it your pet project, and make sure it is right. Advise if there are any mistakes on it – name misspelled, wrong date of birth etc.
If you believe that information on your file is incorrect such as an overdue debt or enquiry made by a credit provider, contact the credit provider and seek an explanation.
If there are credit enquiries on your credit file that you haven’t authorised, you may have been the target of identity theft. Contact the police and the fraud department of the relevant credit provider so they can investigate.
Avoid applying for credit when you are just shopping around for the best deal, or if you aren’t really sure that you need it. Many credit providers view high numbers of enquiries in a short period of time negatively.
Pay your accounts on time! If you can’t, contact the credit provider to make an arrangement.
A few frequently asked questions –
Can my employer access my credit file?
Only if you consent to it.
How will I know if my credit file has been accessed?
A notation will be recorded on your file each time an enquiry is made.
How can shopping around for credit affect my file?
Many applications for credit, whether you accept the offered credit or not, result in many notations on your credit file. Multiple applications are most often seen in a negative way.
Can paying my phone bill late affect my credit file?
Yes. Any overdue debts are noted on your credit file if it is more than 60 days overdue and if the amount owing is greater than $150. If the debt is listed as a serious debt infringement it can stay on your credit file for 7 years.
What happens if I miss one mortgage repayment?
While missing one payment, followed by making repayments on time, may not significantly impact on your credit worthiness, a number of late payments could be an indication that you are in financial distress and negatively impact on your credit report.
My flatmate didn’t pay his part of the phone bill, will this affect my credit file?
If the bill is in your name, yes.
I sold my car to a friend – can they just take over my loan repayments?
Your friend can take over the payments, but the loan is still in your name. If they don’t make payments the credit default will be in your name.
I went through a bad patch and now have a default on my credit file. What can I do?
A default on your file will stay there for a legally designated time, which can be up to 7 years. If possible, pay your existing accounts and clear the debts noted on your file. While the debt will remain in the file, the fact that it is paid will also be noted.
So kids, for all of you who think that you know better than your silly old parents, you probably don’t!
There are a number of providers who complete a free credit report – get yours done because knowledge is power. Learn about it – it can be the difference between getting to put a SOLD sticker on your first home or not. Check out Money Smart, a government website for more info and a list of providers.
Isn’t it a pity they don’t teach this at school?