Ever wondered what your credit rating is and how it is calculated? Been refused credit? Our guide will tell you all you need to know, including how to obtain a copy of your credit history and improve your credit rating.
So you've decided to get a credit card. That nice platinum-coloured one which gives you a six figure credit limit and your own personal butler named Wadsworth.
You're filling out the application online, mentally calculating how long it will take you to earn enough rewards points for a return ticket to Bora Bora, when BAM! Your Application has Been Refused: Poor credit history.
Maybe you forgot about those few months you missed repayments on the washing machine you were renting from Harvey Norman. Maybe it was the fact you already have a credit card which you maxed-out in the first four hours and have been making infrequent repayments on ever since. Maybe you moved out of that share house and didn't get your name taken off the power bill.
Whatever the cause, a bad credit history can severely limit your ability to get finance. Many companies use your credit history to determine your 'credit-worthiness' and it determines how much, if any, money they will lend you.
Your credit history doesn't just affect your ability to get a credit card or loan. Most mobile phone companies and even utility providers (for your power or gas) check your credit history in order to determine whether to extend you goods and services and whether to request a security deposit first.
What is a credit history?
Your credit history is basically a file on every credit enquiry and default that has been made in your name.
When you apply for credit or a loan, the company you're applying with (the 'credit provider') makes an enquiry on your credit history with a credit reporting agency. That enquiry is noted on your file.
If you miss repayments (or 'default'), they may choose to make a note of that on your history.
All of these notes stay on your file for five years, even if you pay the overdue amount.
Who keeps my credit history?
Credit reporting agencies keep track of your credit history. The major ones in Australia are Veda Advantage (formerly BayCorp Advantage) and Dun & Bradstreet.
Each agency has a different way of helping credit providers determine your credit-worthiness. Some calculate a score (a 'credit rating') based upon how many enquiries and defaults you have. Others, such as Veda, simply provide your credit history and let the credit provider determine your credit worthiness.
Each agency calculates and reports your data differently, so depending on who the credit provider uses, one may decline your application while another may accept it.
I missed a repayment. Am I screwed?
Usually you need to miss more than one payment for a default to be noted on your credit history, but it all depends on the credit provider. For most, you need to miss three consecutive payments for them to list a default.
Can I see my credit history?
Yes. Credit agencies can provide you with a copy of your personal credit history upon request. You can usually request a copy from their website.
What can I do to improve my credit rating?
- If you have defaults, ensure the amount is paid.
- Take an audit of every company you purchase services from and ensure you're paying your bills on time. This may include your phone and utility providers, banks and any retail stores you are renting goods from or have purchased on interest free terms.
- Set reminders to pay your bills on your computer or mobile phone calendar.
- If the company offers it, set up automatic payments with your credit card or via direct debit.
- If necessary, seek help with your budgeting and come up with a financial plan that will ensure you have enough money to meet all your repayments.
- If you think some of the information in your file is incorrect, contact the credit reporting agency. Many have forms available online for you to update or dispute the information contained in your file.
