Protecting your credit file
With banks tightening up on their credit criteria, it is more important than ever to take great care of your credit file. Credit issues that the banks would overlook in the past are no longer being overlooked.
This month I will briefly outline issues relating to your credit file and how you can best protect it.
What is a “credit file”?
Your credit file is basic credit data recorded by Veda Advantage, a credit reporting agency. Your credit file will include information such as;
- full name
- date of birth and driver's licence
- gender
- residential address and employer information.
In addition, a credit file also contains information such as;
- information on credit applications made in the past five years. These applications relate to loans for household, personal or domestic purposes.
- information that a credit provider is a current credit provider, that is, you have a current credit relationship with that credit provider (e.g. a credit card, home loan etc)
- details of overdue consumer credit accounts
- details of court judgements and court writs
- details of directorships,
- bankruptcy information.
How do you start a credit file?
When you apply for credit for the very first time the creditor (ie, the bank or mobile phone provider) checks the Veda Advantage database with your drivers licence number, name and address etc. If there is no current record either because this is the first time you are applying for credit in Australia or you have been overseas for 5 years or longer and have not applied for credit in that time, then a credit file will be created with these details and a note recorded that on x date you applied for credit with x lender.
What does a credit file look like and how can I get a copy?
You can see a sample credit file here: http://www.vedaadvantage.com/dotAsset/508887.pdf
To get a copy of your credit file give us a call and we can arrange for free. Otherwise, you can go to http://www.vedaadvantage.com.au/personal/mcf/my-credit-file.dot and either order a copy for free (normally a 2 week wait) or pay and you will receive immediately.
What are banks looking for on a persons credit file?
The bank is checking your credit file to see if there are;
- any paid or unpaid loans, credit cards, telephone bills etc,
- any directorships – if you turn out to be a director of a company the bank will generally want to confirm that this company is trading profitably or not trading at all,
- bankruptcy either current or discharges (includes part IX debt agreements),
- Excessive credit enquiries.
Most of the above are fairly self explanatory – the bank is looking to see if you have had any credit issues to determine whether they will loan you money to buy your home.
Excessive credit enquiries:
As noted above, every time you apply for credit a listing goes on your credit file to state you have applied for x amount from x lender. The file does not state whether you actually took that credit, only that you applied.
Issues arise when you apply for too much credit and the general rule for mortgages is no more than 5 credit enquiries in the last 6 months for the same thing. Personally, I would keep this to 3 maximum.
The issue is that if MAP Bank gets an application from John Smith, MAP will check the credit file to confirm clean credit, no bankruptcies etc. If MAP sees that John Smith has applied to CBA, Westpac, ANZ, NAB, St George in the last 6 months for the same mortgage, MAP Bank may become concerned with the status of those previous applications. Were these applications taken and credit advanced and if so, why was it not disclosed on the home loan application to MAP? Alternatively, were these loan applications declined and if so, why? If 5 banks have said no to finance for this applicant, MAP Bank is hardly going to be inclined to say yes.
It is therefore very important to treat your credit file with great care. I have seen loans declined for trivial amounts - an $80 mobile phone bill unpaid where the applicant moved house and the phone company failed to forward on the bill. Another client was declined for excessive credit enquiries not realizing that every time she entered her information online for a car loan a credit enquiry was being created for each one.
How do I protect my credit file?
1) Consider signing up to “My Veda Alert” – a subscription service that alerts you of any changes to your credit file;
2) When applying for finance do your research first. If applying for home loan finance use an experienced mortgage broker who is going to put you to the right bank first time round only incurring one credit enquiry. Do not go from bank to bank yourself getting approvals, nor allow any broker to submit more than 2 applications on your behalf. If two are submitted and declined its time to find another broker who is going to get it right the first time.
My credit file has issues, how can I repair it?
MAP has access to a company specializing in credit history repair. This company boasts a success rate of 80% for removing paid and unpaid defaults and 60% for removing excessive enquiries.
Any questions or comments please email or call.