Everyone has a credit file and that credit file contains information regarding your credit activity for the last 5-7 years.
Activities shown are events like applications for credit (e.g. a lease, loan or credit card), any adverse items listed against you by a credit provider (e.g. a default from a bank, telco or utility) or information relating to any court actions you have been involved in, typically called a judgement.
The type and amount of activities on your credit file are used towards calculating your score. Scores vary between credit bureaus, but as an example, Equifax (formerly known as Veda Advantage) will provide you a credit score within a range of 0 – 1,200. You want to achieve the highest score possible, as this will give you a better credit rating
As a general rule, the less activity on your credit file the better, as a “busy” credit file could imply a lot of different things.
By seeing your credit file, you will know what activity is contributing to your score. If there’s any activity on there that you don’t recognise, call the listed credit provider (e.g. ABC Bank) and get the relevant details of the application, to ensure it’s not an error. If it is a mistake, ask them to remove it.
Remember: Too much activity on your credit file (e.g. you’ve applied for lots of loans over a short period of time) generally will work against you.
If you need a loan, do not apply to numerous lenders thinking this will increase your chances. Every time you agree to a credit check, (usually a tick box consent online or on paper), this authorises a credit enquiry to be listed on your credit file, and the more enquiries you have, the more your credit score deteriorates.
A quick call to a lender to discuss your situation first can help determine if you should proceed with an application. This avoids an unnecessary credit check if you discover you are not eligible, and protects your credit score.
If you have an existing loan and realise you can’t maintain your loan repayments for a short time due to a small or temporary change (e.g. off work due to sickness) then lenders will work through this with you as this forms part of their customer care.
if there is going to be an ongoing issue caused by a more significant change (e.g. pregnancy, redundancy….) all lenders have a hardship policy you can talk to them about. The most important thing you can do is contact them as early as possible. If you don’t, and avoid explaining why you are missing repayments, lenders will generally go down the path of listing a default on your credit report.
A default and other adverse items really do harm your credit score (i.e. by hundreds of points) so always communicate with your lender and explain you want to try and avoid these.
Defaults can also be listed by utility services. So if you are sharing a place but are going to move out, and the utility bills are in your name, don’t rely on your housemates to transfer the accounts out of your name, make sure you do it yourself.
If you have ended up with a default on your credit file, for whatever reason, then it is worth getting it paid. Contact who has listed the default and discuss how you can clear the debt, so it can be marked as paid. This helps show you are responsible and that you are in a better position than when the default occurred.
While it may not return your credit score back to what it was before the default, it will go a long way.
While you may be doing all the right things to protect your score, others may be not doing the right thing by you. There are increasing cases of identity theft affecting many Australians, so consider having alerts set up on your credit file to make you aware of this, should it occur.
Equifax is one of Australia’s credit bureaus who offer this service. You can find out more about this type of protection by visiting their website at equifax.com.au.
I hope this is informative and helps you take real action to understand and improve your credit score.
Fair Go Finance