How Credit Ratings Work in Australia
Written by Phillip Gruppelaar
When you are looking for a loan, a credit card or even just want to be on a mobile phone contract, your credit rating will impact whether the agreement will be approved or not, or if approved what sort of deal you are offered.
In Australia most finance applications for credit are determined by a computer program. These programs use the credit score that our country’s credit reference companies supply as a guide to your credit worthiness.
The biggest problem with Credit Reference companies in Australia is that they do not recognise or record good credit conduct. Your previous lenders are the only organisation’s that holds that information.
Credit reference companies (e.g. Veda Advantage) don’t have the ability to provide exact information about you, but they do have the ability to paint a picture of your credit habits.
1. The personal particulars you supply for each application. (Full Name, Current & Previous Address, Date of Birth, Drivers Licence No.)
2. Who you have applied to and how much you applied for on this application
3. Any finance application or utility credit application you have made for the last 5 years
4. Any other names you have been known by
5. Any payment defaults you have and if these have been paid or not
6. Any Directorships you hold
7. Any Court Judgements you have
8. Any bankruptcy acts you were involved in (personal or company)
Many good quality applications submitted electronically (i.e internet applications) for finance or utility credit are rejected solely because the applicant does not take the time to complete their application correctly. Others are declined due to information contained on your credit report.
1. Sloppy attention to personal particulars can create a second credit file for you. A second credit file reduces the financier’s faith in the quality of the application. If it’s a fine line between approval and decline, a decline is often the result.
2. Multiple finance applications (4 or 5 in 30 days) in a short period of time directly reduce your credit rating. Financier computer programs are still set up as if these applications you have made were declined and not that you are just searching for the best deal.
3. Any default, court judgement or bankruptcy in most cases will bring about an automatic application decline
If you are concerned about your credit rating or you have defaults, judgements or Bankruptcy’s on your file, a good idea is to engage an experienced Finance Broker. Make sure you contact a broker that specialises in bad credit.
Experience here is the key. All brokers submit most of their applications in the same way an individual does (electronically). You need a broker who will pick up the phone and argue your case for you.
How can you personally help with your credit rating?
1. Make sure your application details are correct in every way.
2. Get a copy of your credit report, contact the Credit Reference Bureau (e.g. Veda Advantage) and have any errors removed.
3. If you have bad credit talk to a credit repair agency (Not a debt agreement company) A credit repair agency looks to get your defaults removed from your file, a debt agreement agency negotiates debt repayment, often as a Part IX debt agreement which is an act of Bankruptcy. Be careful who you chose and be aware both charge for their services.
4. Don’t use pay-day lenders, they tell a prospective financier you can’t live week to week, so why would they increase your weekly commitments with a new loan.
5. Use a finance broker who genuinely understands your credit file and has access to lenders who are happy to give “second chances”
6. If you have had a good loan with a financier and you don’t have any defaults on your credit file, but you are often late with payments to other institutions or utility providers, approach your old financier, they look at their own records and seldom look elsewhere.
In summary you must be aware of what things Credit Reference Agencies know about you. They only know your personal details, what applications you have made and what you have done wrong.
They do not know what you have done right. You need to deal with what they know about you as best as you can (e.g. use a broker to help) and then highlight what you have done right.
Your circumstances may have changed dramatically from what they know. (e.g. you earn a lot more, there was a genuine problem that has now been solved or your credit file is simply incorrect), prepare yourself to make the best quality application you can.
Leaving things out does not help. If you leave things out and you get found out, you are guaranteed to be declined.