If you’ve applied for or used credit, then you are likely to have a credit report and a credit score referred to as your credit profile. It’s a way for Australian credit providers, such as banks and credit card companies, to help work out how likely it is you’ll be able to repay a loan.
Your credit report and score are pieces of information that can be used by credit providers to help decide whether or not you will receive the credit you apply for and also contribute to the terms on which you receive the credit.
What is a Credit Report?
A credit report is a record of your credit history, collected from a number of different sources, including:
- Credit providers: Credit unions, banks, payday lenders, store credit issuers, phone and utility providers.
- Public record information: Australian Securities and Investments Commission (ASIC) records, Judiciary records (court writs and judgements relating to credit), bankruptcy and debt agreement information.
There are a number of components to a credit report, including:
- Personal information such as your name, gender, date of birth, driver’s licence number, address and employment history.
- The number of credit enquiries, or applications, you’ve made.
- Any proprietorships or directorships you have.
- Any overdue accounts.
- Details about credit accounts you may hold, including the provider, account type, opening date, closing date, credit limit.
- Repayment history such as whether you meet your repayments on time, any missed or late payments (this information won’t be provided by phone and utility providers).
- Debts of $150 or more that were not paid within 60 days.
The details in your credit report are regulated by the Privacy Act 1988, to balance the need to respect your privacy with the need to ensure credit providers have the information to grant credit to consumers. You can access your credit report for free each year. To change incorrect information in your credit report, approach the credit reporting body directly or you can go to the Equifax Corrections Portal.
What is a Credit Score?
In contrast to the credit report, that contains detailed information about your credit history in writing, the credit score is a numerical figure. The Equifax Score uses the information from your report at a point in time and turns this into a number between 0 and 1,200.
Two people could have the same credit score, but this does not mean the information within their credit report is identical as there are many factors that contribute to a credit score.
The Equifax Score uses a comprehensive credit scoring model to display it as both a number and a percentage range that puts you within a range of other credit-active Australians:
- Below average (bottom 20 per cent)
- Average (21-40 per cent)
- Good (41-60 per cent)
- Very good (61-80 per cent)
- Excellent (81-100 per cent)
If you have a below average or average Equifax Score, you are more likely to have adverse information recorded and if your Equifax Score is good, very good or excellent, Equifax predicts you are less likely compared to the average credit-active Australian.
How to Improve your Credit Score
A key step towards financial health is a healthy credit report. Whether you want to take out a loan to buy a home, a credit card to earn points or a new mobile phone on a post-paid contract, a credit provider will probably want to access your credit report to decide whether or not you’re creditworthy.
Step 1: Know What’s on Your Credit Report
You have a right to a FREE copy of your credit report each year from each credit reporting body. Getting to know what’s on your credit report is the first step in taking control of it and will also let you see if there are any errors. In particular, check to make sure that there are no late payments incorrectly listed and that the credit limits for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit reporting agencies or credit providers (see the end of this article for more detail on how you can go about this).
Step 2: Keep Track of Your Credit Score
Your credit score is like a summary of what’s on your credit report and can give you a quick indication of how credit providers see you. Movements in your credit score can show whether your actions are helping to improve your credit report.
Step 3: Fill Out Credit Applications Fully and Consistently
Most of what’s on your credit report comes from you, when you fill out applications (name, address, date of birth, etc). The information that identifies you is passed on to the credit reporting body and put on your report. If you don’t fill out the application properly it can make it harder for credit providers to get a proper credit report about you.
Step 4: Don’t Forget to Make Your Payments
Make sure you make your payments on time. If you are in the habit of forgetting payments, set up direct debits or reminders. Forgetting one payment shouldn’t have too much impact, however if you regularly fall behind, it can make you look bad to credit providers.
The longer you pay your bills on time after being late, the more your score should increase. Older credit problems count for less, so the impact of past credit problems on your score fades as time passes.
Be aware that paying off a default stays on your report for five years, it will not be removed.
Step 5: Talk to Your Credit Provider if You Are Struggling to Make Payments
Many lenders and other businesses that sell things on credit must work with you if you tell them that you are struggling with your payments. This won’t rebuild your credit score immediately, but if you can begin to manage your credit and pay on time, your score should increase over time. Seeking assistance from a financial counselling service can also help.
Step 6: Keep Your Details Up to Date with Your Credit Providers
If you change your street address or email address without informing your credit providers, they could be sending you bills to an incorrect address. You may owe them money and not know that you do, which could end up as a default on your credit report.
Step 7: Be Sensible with Credit
Managing your credit cards responsibly (paying on time) is good for your credit report and credit score. However, if you have more credit than you can comfortably afford, it can make it harder to get credit when you really need it. If you have too much credit, close down accounts you don’t use as your credit report will show what you have available, even if you don’t use it.
Also, don’t open a lot of new accounts too rapidly as you can look risky if you are a new credit user. New accounts will lower your average account age, which can lower your scores if you don’t have a lot of other credit information.
How to Fix Errors in Your Credit Report
If you find errors in your credit report, you can ask any credit provider or credit reporting body for help to fix the error. They must respond within 30 days to a request and once the matter has been investigated, you must be given a written response indicating why or why not a correction will be made. If you’re still unhappy, you can ask the independent External Dispute Resolution service to investigate the matter.
Find Out More About Your Credit Profile
To discover more about your credit score and credit report, you can take a look at Equifax’s free credit report and annual subscription packages. Contact me directly if you would like to discuss your individual circumstances further.