Although it is only the big four banks who will be subject to mandatory comprehensive credit reporting (CCR) from 1 July 2018, many smaller banks and other lenders already participate, and others are likely to follow suit in the coming months. Depending on whom you bank with and what credit products you currently use, your lenders could already be providing CCR information to Australia’s credit reference bureaus. If they’re not already doing so, you should be prepared for the likelihood that they will do at some point before 1 July 2019, when the big four will have to be providing 100% of the necessary consumer credit data to the credit referencing bureaus.
What are the essential do’s and don’ts you should follow to ensure you keep your credit file in the best possible shape, enabling you to access credit when you need to and allowing you to be offered the best possible deals?
Do: Only Apply for Credit When You Need it and Have Adequately Researched
If you don’t need credit, then it makes no sense to apply for it. Going through a credit application “just to check” whether you would be accepted can be disastrous for your credit file, particularly in the short-term. Ensure you do your research before applying for credit, and then apply only for the product you want with the lender of your choice. Avoid the temptation to “shop around.”
Don’t: Apply for Credit Repeatedly in a Short Space of Time
Although the data that will be visible on your credit report post-CCR means lenders will be able to see if you’re a responsible user of credit, having repeated applications for credit in a short timeframe will remain a warning sign and be interpreted as the applicant experiencing financial or credit distress. Such applicants will be viewed as representing a higher risk; you may find yourself only being offered higher interest rates, or maybe find you can’t get an application accepted at all.
Do: Set Up Direct Debits to Ensure Bills are Paid on Time
One of the biggest changes coming with CCR is that the big four banks, as well as smaller banks and other lenders that may choose to embrace CCR, will have to report whether you make your payments on time. This means that any lenders checking your credit file will see whether you have been a reliable payer over the last two years. Under the previous negative reporting method, late payments might not be recorded at all unless they escalate to a default or other serious credit infringement.
Don’t: Maintain Lazy Paying Habits
At present, if you pay certain bills a few days late you probably aren’t going to see much of an impact on your credit file, and you might not even be bothered by any late payment fees that are applied to your accounts. However, if you’re the type of person who casually pays your credit card bill or personal loan account later than you should, you should kick this habit immediately and start paying on time, as with CCR every late payment will be visible to your prospective lenders.
Do: Look for Promotional Credit Cards
If you can find credit cards with a 0% balance transfer rate, great! Take advantage of these to reduce your debt without paying any interest, but beware of the next “don’t”.
Don’t: Switch Credit Card Providers Too Often
It is tempting to switch credit card providers every 12 – 18 months to ensure you are always taking advantage of a promotional rate. However, if you’re only using these promotions to enable you to keep making the minimum repayment and not to make a concerted effort to clear your overall debt, this may have negative consequences for your credit file. If you’re trying to change any more frequently you may also be harming your chances of acquiring credit by applying for credit cards too often.
Do: Ensure Your Credit File is Correct and Up to Date
Keeping on top of what your credit file says can be crucial in enabling you to be accepted for credit products at favourable rates.
- Ensure you check your credit file regularly so you can be sure the information held is correct. If any lenders have reported late payments incorrectly or anything else is not right, contact them to resolve the issue.
- If you move house, ensure you tell all of your creditors as soon as you can.
It may also be worth setting up activity alerts on your credit file so that you are notified when anything changes. CCR means credit reporting bureaus will be updated monthly, and more information may mean a higher likelihood of mistakes occurring, so it is in your interests to manage this closely.
Checking your credit file also means reporting any potentially fraudulent entries, such as credit enquiries you haven’t made, which usually indicate someone aiming to acquire credit in your name.
Don’t: Get Complacent Around Credit File Management
It’s easy to fall into the trap of thinking “everything will be fine” when it comes to your credit file. However, for something that takes so little time, it really is worth doing. Being complacent and not checking your credit file will usually mean you discover problems when you want to apply for a bigger loan, maybe even a home loan, and then have to spend time resolving the issues before you can apply again. In worst case scenarios it may mean you even start receiving payment demands for accounts you know nothing about! Don’t invite stress or let your life be held up by something you can check in a few minutes every month.
Remember that you are entitled to check your credit file and get your credit score free of charge, too. Use this information as part of your other credit file management activities and use of credit to monitor how your habits impact your credit score.
Do: Pay any Defaults on Your Credit File
Lenders are more likely to take a softer view of historic defaults if you have paid them. If you have a paid off default from three years ago, but two years of unbroken payment history, always paying on time across various accounts, lenders may still be able to offer you a product. If you have the same default but have made no efforts to clear it, lenders are far less likely to be sympathetic.
Don’t: Overdraw or Exceed Account Limits
In much the same way as it is easy to fall into the habit of casually paying your bills a couple of days late, it’s easy to exceed an account limit knowing there isn’t any real consequences save for perhaps a charge of $20 if you don’t bring your account back within the allowed balance within a specified period. This is an easy way to demonstrate that you’re not reliable when it comes to utilising credit or an overdraft facility, so ensure you plan your finances so you never fall foul of this. Don’t allow something relatively simple and innocuous to prevent you accessing better credit rates in the future.
Staying on Top of CCR
Keep these do’s and don’ts in mind, and make any necessary positive changes to your credit usage behaviour now, to ensure you stay on top of CCR and always have a correct, up to date credit file, which accurately represents your credit-worthiness and reliability as a borrower, enabling you to borrow when you need to, and at the best rates available.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.