Understanding Your Credit Report
When compared to overseas markets, Australian consumers are remarkably ill-informed about their credit report, and how they can actively manage their financial behaviour to ensure a strong credit check.
What do you know about your credit report?
In 2014 a positive credit reporting system was introduced into Australia; however, lenders have been slow to adopt and apply positive credit reporting to their assessments for consumer credit.
Common misconceptions about credit reporting
Our research has shown that many Australians don't realise how their financial choices affect their credit report and their ability to obtain credit such as home loans in the future.
1. You need to have a credit card to have a credit report
A survey by Experian found that 19% of Australians believe having multiple lines of credit open can positively impact their credit-worthiness, and 40% of us have up to three lines of credit available that they hardly ever use.
In fact, each line of credit you have open acts as a liability when assessing your ability to obtain finance, regardless of whether you rarely use it. Having no credit card is just fine, as you'll demonstrate your credit-worthiness through regular savings and paying bills on time.
2. As long as you don't have defaults, you'll have a good score
A credit default is recorded when there's a payment of over $150 that is overdue for at least 60 days.
You'll know when a credit default is being recorded, as you will receive either physical mail or email notifying you that payment is due. It's your responsibility to ensure that your credit providers have updated information to contact you.
A default can be listed only after waiting 14 days from the final notice at 60 days. It's not just serious defaults that affect your credit rating though.
Your repayment history includes all consumer credit payment obligations each month, including whether payments are made on time. Any payment that's 14 days overdue is considered to have been missed - even if you've made a partial payment.
You can find out more about what information is included on your credit report here.
3. Missing a small payment won't affect your credit report
Any payment due under a consumer credit contract with a bank or lender that's over 14 days late will affect your credit. This includes situations where you've paid part of the amount due but not the full amount.
The good news is that if you do miss a small payment, it will only show for two years.
4. If you pay utility bills on time you'll have good credit report
According to the Australian Government OAIC*, paying your utilities on time won't ensure that you'll have a good credit check.
Your credit report records information about consumer credit. This means that only payments due to a credit provider holding an Australian Credit Licence will form your repayment history. This includes:
- home loans
- personal loans and car loans
- credit cards
It does not include things like your telephone bill, electricity, gas or water, public transport or road tolls, and bills for retail goods and services provided on credit.
If your repayment history is going to be recorded, this information will be clear when you enter a credit contract.
Alternative ways to fix your credit report
The best way to ensure you'll be approved for your next credit application is to know what's on your credit report.
Once you have your report, you can identify high-risk listings, like any defaults, multiple loan applications in a short time frame, any infringements or bankruptcies.
You can then improve your credit report by reducing the limit on a credit card you aren't using, or consolidating multiple loans into one. If you're at risk of missing a payment, contact your credit provider for an extension to pay before it falls due.
Who can see my credit report?
A credit provider with an Australian Credit Licence. This includes banks, building societies, credit unions, credit card companies, and payday lenders.
Your car loan broker can view your credit report on your behalf when you apply for a car loan, with your permission. They'll be able to use this information to match you with a car loan provider and advise you if you need to take any action to improve your rating.
How to get your credit check
You can obtain a free copy of your credit report each year from a credit reporting body in Australia. Your consumer credit report will contain any major defaults within the last seven years and your repayment history for the last two years.
If you've made every payment on time, a '0' will appear. Missed payments will be listed next to the month where the payment fell due.
If you want to take out a loan, whether it's a home loan, personal loan or a car loan, it's a good idea to use a finance broker who'll be able to perform a 'soft' check and advise you on which lender is best to apply for.
*Office of the Australian Information Commissioner, Privacy Fact Sheet 34.