Have you ever wondered how the bank decides whether to lend you money? Your credit score or rating is critical to your capacity to borrow money and on what terms. Your score is an aggregation of your borrowing behaviour over the last five to seven years. To help borrowers avoid financial stress or bankruptcy, the government passed legislation that allows lenders to see view your credit history with providers of credit such as mobile contracts, utilities, credit cards and other loans. Your credit score contains key personal information including your full name, home address, birth date, gender, driver’s licence number and employer details. You can access a free copy of your credit score once a year through ratings services such as VEDA.
What impacts your score?
Your financial behaviour has a direct impact on your credit score. Common issues that will negatively affect your score include:
• Paying bills more than 60 days late;
• Late credit card minimum payments;
• Making more than one application for the same loan; and
• Trying to secure a loan after being refused.
Additional potentially negative factors include:
• Proprietorships or directorships;
• Previous bankruptcies or insolvencies;
• A writ of summons served on you for payment;
• Multiple credit score inquiries from lenders or credit providers.
From March 2014, the Australian credit reporting system included adding not only negative credit information on a person’s credit file, but also positive ones. This impacts on how credit scores work and what score you’ll receive on your file.
Positive factors included in your credit score include paying bills on time, full payment of credit cards, extensive credit history with providers with no defaults or late payments and employment history.
Credit scores are a number from 1-1200. In Australia, an excellent credit score is anything between 833 — 1200, very good is 726 — 832, good is 622 — 725, average is 510 — 621 and below average is 509 or less.
How to correct an error in your credit score
On occasion, a credit score may be incorrect, with mistakes such as incorrect personal details or missing positive personal details like your employment status. A credit provider may have missed a payment received from you and reported this as a default.
While errors are uncommon, they do happen. ASIC recommends you follow these steps to correct any errors you encounter:
1. Talk with the credit reporting agency first. They may be able to fix small errors straight away. For others, they will help you through the steps needed to make a change. They may offer to contact credit providers for you.
2. Talk with your credit provider. Contact your credit provider and explain why the listing is misleading or incorrect. If they don't fix the problem, go directly to your credit provider's independent dispute resolution scheme. This will be either the Financial Ombudsman Service at www.fos.org.au, phone 1800 367 287, or the Credit and Investments Ombudsman at www.cio.org.au, phone 1800 138 422.
3. If the listing is still incorrect, contact the Privacy Commissioner. If you still haven't been able to sort out the problem after going to your provider's dispute resolution scheme, contact the Office of the Information Commissioner at www.oaic.gov.au. You have 12 months from the date you became aware of the problem to file a complaint. If the incorrect listing has caused you financial loss, include this in your complaint.
How to improve your score
ASIC recommends you avoid debt solution companies that claim they can 'improve' your credit report, especially those that charge fees for services that credit reporting agencies provide free. These simple steps will help you to improve your credit score over time:
1. Check your current score;
2. Correct any errors;
3. Consolidate debts if you are missing repayments;
4. Set up direct debits or use planning tools to ensure payment of bills is on time;
5. Keep old credit card accounts open, even when they are paid and no longer in use. This will show up as a long history of good credit with that provider;
6. DO NOT refuse to pay a bill because you dispute it. Pay first and dispute it afterwards;
7. DO NOT make multiple loan applications – use a broker or research your loans before you apply with the most suitable lender; and
8. DO NOT make multiple loan applications when a loan application has been refused.
How Grow Capital can help
Grow Capital has access to a range of specialist lenders. We can assist with credit score challenges and loan eligibility. The Grow Capital team works closely with clients to identify a finance plan that fits the evolving needs of all parties. Contact us to find out how.