Credit File Myths
When helping people achieve a home loan, we often get told by people that the main reason they took on a debt (car loan, personal loan or interest free furniture loan) was because having this paid on time would give them a good credit file. This and many other aspects about credit files are just plain myths perpetuated by uninformed sales people trying to get you to buy their product (on credit).
Here are a few classic credit file myths from Office of the Australian Information Commissioner and a few of my own;
If I pay bills on time, I’ll have good credit.
According to the Office of the Australian Information Commissioner, repayment information in regards to utilities, phone or internet contracts, road tolls and public transport fines will not show up on your credit file. It is important to pay utilities, phone and internet contracts to avoid any defaults being listed on your credit report.
We know that paying loans on time is recorded, but when seeking a loan, showing that you are paying one loan on time does not help remove a blemish elsewhere. And quite frankly lenders expect loans to be paid on time, that just makes you a normal borrower (nothing special about it).
The payment I missed was so small that it won’t matter.
The Office of the Australian Information Commissioner reports that your credit file doesn’t actually reveal the monetary value of your missed payments – only that you’ve missed them. This means you won’t want to slack off with even small amounts of consumer credit debt, as it’ll mark your history all the same.
Defaults do however record the amount and we have had a loan delayed because of a $27 late video return fee unpaid default being on file. Fortunately, once paid (and the credit file updated to ‘paid default’) the lender let the loan go ahead, but they could have declined the loan anyway.
I’ve only missed one payment so it won’t be a big deal.
As you may know, you’re counted to have missed a consumer credit payment if you make it more than 14 days after it was due. However, the Office of the Australian Information Commissioner shows that if you’ve missed just one payment, your credit history will still mark down that you’ve not met your credit obligations for that entire month.
The bill got lost when I changed addresses, so it’s not my fault and once paid, all will be cleared.
It’s your responsibility to update businesses that give you credit. Remember things like electricity and phone calls are given on ‘credit’ and billed later. If you have a joint bill with a flatmate, when moving out, get your name off the bill. Things happen and it might be years later but if the old flat mate falls on hard times, your name goes down as well.
I have never had a loan so my credit file must be OK.
Even if you have not had a loan, multiple credit file enquiries are detrimental. Indeed, some banks will view four or more credit file enquiries with a year as a warning sign and have been known to decline a loan based on this. Be careful when researching interest rates on line (particularly credit cards) as entering your data may cause a credit file enquiry even if you don’t take up the card offer.
So, what is good for your credit file.
If you are young and never had any credit, then the best way to start you credit file is to request a copy. If you have no credit file, the request will trigger the creation of one (and a clear one at that). Many people are surprise to find that when they thought they had no file, they actually do. Mostly because companies check on you before opening an account and this created a file (eg electricity and phone companies). Requesting a copy of your file does not count as a credit enquiry.
Be very careful what you consent to when making credit enquiries. Most privacy consent forms (terms and conditions) will have a section that allows a company to check your credit file. If face to face and you see a person typing your name into their computer, stop them and confirm this will not unnecessarily cause a credit file enquiry. Be extra careful if it’s a bank, because some do a check and the staff don’t know this or don’t understand the background software.
Pay your bills on time. This may seem obvious but is often overlooked. If you move addresses, be diligent and let all credit providers know (or bills get lost).
Our suggestion is for people to find out what their credit file says (this is better than a credit score as more details are given). There are two main companies (Veda & Dun & Bradstreet) in Australia where Credit Files are kept, of which Veda is the main player and Dun & Bradstreet is a rising competitor. Whilst both want to sell you the information and will supply it immediately, there is a longer way (3-10 days) to get your information for free.