Can you really clean up your credit history?
What is credit history?
The legislation that governs credit history and credit reports in Australia is the Privacy Act 1988. According to section 6N of the Privacy Act, credit information, (commonly referred to as ‘credit history’) can include information about a person’s:
- repayment history;
- default history;
- court proceedings brought against them;
- personal insolvency; and
- credit worthiness, among other things.
Essentially, your credit history is information that relates to how likely you are to pay off your debts on time. Creditors such as banks can access this information about you and will use it to decide whether they will grant you a loan.
Most adults have a credit history. However, if you have never had a credit card or never had a loan, you may not have a credit history. When compiled together, your credit information is generally called a ‘credit report’.
What is a credit report?
Your credit report includes the following information:
- personal details such as your age and address;
- the types of credit providers you have used;
- the amount of credit you have borrowed;
- the credit cards you hold;
- the number of credit applications and enquiries you have made;
- any unpaid or overdue loans of credit you have incurred; and
- any debt agreements or personal insolvency agreements relating to bankruptcy.
As of September 2018, credit providers are putting more information on credit reports, such as:
- the type of credit products you have held in the last two years;
- your usual repayment amount; and
- how often you make your repayments and if you make them by the due date.
What is a credit score?
Your credit score is calculated using the information on your credit report. Credit scores are calculated by credit providers and credit reporting bodies. Your credit score number will correlate to one of the following descriptions:
- Very good
- Below average
When you apply for a loan from a credit provider, they will check your credit score when deciding whether to extend you credit. The better your credit score, the more likely it is that credit providers will be happy to grant you a loan.
Individuals can access their credit scores online once every year for free. It is important to keep in mind that your score could change depending on which entity has calculated it. Some entities use a scale of 0 – 1,200 while others use a scale of 1 – 1,000.
I have had some defaults in the past, will they be on my credit report?
Creditors can only report a debt if it is for the value of more than $150. Further, you must be a ‘confirmed debtor’ for your creditor to report your debt. This means that either your creditor has not been able to contact you, or more than 60 days has passed since the payment was due.
The creditor also must have contacted you in person or via written means and asked you to pay the debt. If these steps have not occurred, your creditor cannot report your debt.
A default, once listed, will be on your credit report for five years. This applies even if you subsequently pay the debt, however your report will say that you have since made the repayment.
I think there is a mistake on my credit report
Even though defaults will remain on your credit report for five years, you are able to request that a credit provider or credit reporting body remove information from your credit report if it is:
- out of date;
- irrelevant; or
If you can successfully show that the information fits one of these categories, the entity must remove it within 30 days of your request (or within a longer period agreed to by you). These regulations are described in section 20T of the Privacy Act. The process of requesting a mistake be removed is free of charge.
If the entity does not correct your credit report upon finding a mistake, you can make a complaint to the Office of the Australian Information Commissioner (OAIC) or the Australian Financial Complaints Authority (AFCA).
If there is a mistake in a business’ credit report, (as opposed to an individual’s credit report) and the relevant entity refuses to correct it, the business can only make a complaint to AFCA, not OAIC.
Business credit reports
Just like individuals, businesses also have credit scores and credit reports. In general, a business’ credit report will look very similar to an individual’s in terms of what it includes and how the score is calculated.
Can I repair my credit history?
If there is a mistake on your credit report, you can follow the steps described above to go about getting the error corrected.
However, if there is no mistake on your report but you simply want to improve your credit score, unfortunately there is not much you can do. As mentioned above, defaults will stay on your report for five years. Having said this, your credit score is dynamic, meaning it can change on a regular basis as you make repayments and/or are extended more credit. You can also put a comment of up to 25 words on any adverse credit reporting, setting out your side of the story.
There are some ways that you can maintain a good credit score. Some tips for this include:
- lowering your credit card limits;
- limiting your applications for credit;
- making all repayments (including rent, mortgage and bills) on time; and
- paying your credit card off in full every month.
For businesses, the tips mentioned above still apply, however here are some additional suggestions:
- set up an effective accounts payable system so that you know when all payments are due;
- use software that automates the payment of your bills so that you don’t forget to pay them; and
- keep an eye on cash flow.
I’m concerned about my credit score, what should I do?
If you are concerned about your individual credit score, or that of your business, or even if you just have some questions relating to your credit report, please do not hesitate to contact Lynn & Brown Lawyers for expert assistance.
About the authors:
This article has been co-authored by Chelsea McNeill and Steven Brown at Lynn & Brown Lawyers. Chelsea is in her fourth year of studying Law at Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.