One of the most important variables that determine whether a bank will approve your home loan is your credit report, so it pays to ensure the information on it is correct.
Your credit report considers your previous credit history, including whether you meet your minimum monthly repayments, such as your credit card bill, on time. It is maintained by bodies called credit bureaux or credit reporting agencies.
“Your report takes into account how much you have borrowed in credit cards, personal and other loans,” explains Stephen Smyth, head of international at ClearScore, which gives consumers free access to their credit score.
Your report also includes information about how often you have applied for a loan and whether you have been successful – or not – in securing credit. “It includes information about whether you have missed any repayments in the past, defaulted altogether on any loans or became bankrupt,” Smyth adds.
But your credit report is not always correct. Choice magazine’s staff recently accessed their credit reports and found out of 27 credit reports, 18 contained at least one error.
“Credit reporting bureau Equifax keeps data on around 19.4 million individuals. Errors are inevitable, given the volume of data that flows between credit providers and credit bureaux,” says business coach Amy Chen.
Misspelt names, incorrect dates of birth and mistakes with previous or current addresses are the most common errors. “Credit reports can also mistakenly contain listings for someone who has a similar name to yours or close family members,” Chen adds.
Other common errors that have potentially significant consequences when it comes time to apply for a loan include a lender creating an account in your name by mistake, incorrect reporting of overdue payments or an incorrect amount for a payment default. Credit providers can sometimes also fail to update their records for payment arrangements or renegotiated terms agreed after a default.
“Creditors have to notify you about an outstanding debt before they’re allowed to report it. So if a default is listed that you weren’t notified about, you’re entitled to have it investigated and potentially removed,” she notes.
Erroneous listings on a credit report also sometimes happen as a result of identity theft. This occurs when a loan has been taken out by a fraudster posing as you.
If you find an error on your credit report, contact the credit provider or credit reporting agency. It is legally obliged under privacy laws to correct any out-of-date, incomplete, irrelevant or misleading listings for free within 30 days. Or they must tell you why the correction hasn’t been made.
“The agency can easily fix minor errors such as your name, date of birth or address. Credit reporting agencies often list a debt twice by mistake or get loan and repayment amounts wrong. These errors can also be resolved quickly,” says Chen.
Contact the Australian Financial Complaints Authority if you’re unhappy with the response you receive from your credit provider. AFCA can order the creditor to request the credit reporting agency to remove the listing if they agree it’s incorrect or inaccurate and should be removed. If you’re still unsatisfied with the outcome, you can file a complaint with the Office of the Australian Information Commissioner.
Establishing a strong credit profile is a long-term game as payment histories stay on your credit report for two years. Defaults, court judgements notices, debt agreement information and bankruptcies can take up to five years to fall away, with serious infringements taking up to seven years to be removed. Nevertheless, there are steps you can take to improve your credit score.
First, pay your bills on time. Bills for $150 or more can be reported as a missed payment or default if they are outstanding for more than 60 days. “If you’ve since repaid these in full, your report will be updated to show you’ve made the payment. But the default will remain on your report for up to five years. The more late payments you have listed, the more impaired your credit report will be,” says Chen.
Also, make sure you pay loans on time. “If you’re late, make sure you pay within 14 days of your original due date to avoid being reported in arrears,” she adds.
It’s also important not to apply for too many loans unnecessarily. Frequent applications over a short period can raise your risk profile and lower your score, as will having more loans over and above what you need and can comfortably handle.
Chen also advises cancelling credit cards you don’t need and reducing your debt. “People who consolidate their debts and lower their credit limits will be perceived as being lower-risk loan applicants compared to someone with the potential to max out numerous credit cards.”
Make it a priority to avoid negative entries. Credit-related court judgements against you will have a significant impact on your credit report and remain on it for five years. Bankruptcies stay on your report for five years from when you are declared bankrupt, as will any debt agreements. Serious infringements, such as when a credit provider considers you to be a missing debtor who can’t be contacted or found, can stay on your report for up to seven years.
Most importantly, check your credit report every year so you can identify errors early and don’t get a nasty surprise when applying for a new loan. That’s the best way to ensure you’re not hamstrung next time you find your dream home and apply for a loan.
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