Understanding Your Credit File: The Truth Revealed

When the National Consumer Credit Protection Act came into effect in 2010, it was designed to help regulate lenders and prevent consumers from getting out of depth with debt.

Understanding Your Credit File: Essential Insights for Borrowers

One of the spin-offs has been increased scrutiny on would-be borrowers.

Lenders now look at an individual's credit file to help determine if they are a good or bad risk.

Yes, that's right - a credit file. It sounds very FBI and, in some ways, it is. Your credit file includes your personal information, including your full name, date of birth, driver's licence number, gender, addresses, and employer information.

It also records any credit applications you have made in the past five years, such as home loans or store financing of household goods, plus any bills you have defaulted on and any financial matters on public record, including any bankruptcies or directorships.

Home lenders will look at your credit file to verify your reliability. Being aware of what's on your file and how you can keep it clean will go a long way to helping you secure a home loan.

Understanding previous credit applications

A previously declined credit application can leave an unwanted stain on your credit file. If you are declined a credit card or a loan, find out why and take steps to rectify the situation before applying for new loans or credit.

While your positive actions may not erase the blemish, you can at least demonstrate responsibility with the new lender, which may convince them to give extra weight to other criteria, such as income and a strong employment record.

Payment defaults and their impact

Don't think that unpaid phone bills from your previous rental matter much? Think again. A payment default is an account of $100 or more that is 60 days or more overdue.

Payment defaults can only be included on your credit file if the credit provider has tried to recover some or all of the overdue amount. This means they must have sent a notice in writing to your last known address and requested payment.

Payment defaults stay on your credit file for five years, even after you pay the overdue amount.

If you don't pay a bill but can't be contacted, you may be declared a clearout. Before you can be listed as a clearout, the credit provider must make reasonable efforts to contact you, either in person (including over the phone) or in writing to your last known address.

If you can't be contacted, the credit provider can immediately list the debt on your file as overdue, even if it hasn't been overdue for 60 days or more. Clearouts remain on file for seven years from the date they are listed, even when you have paid the overdue amount.

Avoid unpaid bills blighting your credit file by:

- Paying on time or at least when overdue notices are sent.

- Providing a change of address to all creditors/billers if you move.

- Leaving someone to manage your bills if you need to be away for a month or more.

Managing financial hardship

They say it's often better to seek forgiveness than permission, but most lenders are happy to discuss what can be done to help if you hit hard times. Far better to fess up to a creditor or lender if you can't make one or two payments than have them whack a black mark on your credit file due to lack of contact.

Talk to your Mortgage Broker

Borrowing via a Mortgage Broker is one of the best ways to navigate the credit crunch. A broker will have a good understanding of what financial attributes various lenders are looking for in their borrowers.

For example, a lender may give kudos for long service in a job and a solid savings record, which may help offset an unpaid bill from three years ago that appears on your credit file.

Your broker can also advocate and negotiate on your behalf. Just remember, it pays to be honest. If you have a mark against you, be upfront so your broker can consider the best lender and loan for your situation.

Understanding your credit file history

Having a clean credit history is crucial for securing the best loan terms. By understanding your credit file history and taking proactive steps to maintain it, you can improve your chances of getting approved for loans and obtaining better interest rates.

Disclaimer:

The information provided on this website is for general information and educational purposes only. It does not take into account your personal objectives, financial situation, or needs, and should not be relied upon as financial, legal, or tax advice. While we strive to ensure the content is accurate and up to date, we make no guarantees of its completeness, reliability, or suitability. Any reliance you place on the information is strictly at your own risk. We recommend that you seek independent professional advice before making any financial decisions, including from a licensed mortgage broker, financial adviser, or tax professional. References to government schemes, grants, or lender products are subject to change and eligibility criteria. Please confirm details with the relevant authority or provider. We are not responsible for any loss, liability, or damage incurred as a result of the use of this website or its content.