By now, you probably have an appreciation of the fact that credit reporting changes were introduced in Australia last month. But do you know about the implications they can have on your ability to get a home loan, a personal loan, heck – even a new mobile phone deal?
In a nutshell, the comprehensive new credit reporting system that came into effect on 12 March 2014 (as a result of the changes in the Privacy Act) means that organisations now have access to a better overview of an applicant’s financial situation and payment habits.
This is because credit providers will be able to share a broader range of information than they were able to share before about your financial history to credit reporting agencies such as Veda and Dun & Bradstreet.
The biggest change – and the one that has the most potential to impact your ability to borrow in the future – is the way that your credit profile is curated. From March 12, your repayment habits are reported when you’re just five days late in paying a bill, and this information stays on your history for two years.
I’ve been investing in property for a number of years, so I’ve got a pretty good handle on my finances. Every now and then, I confess, the odd bill gets paid late, but for the most part I pay all of my bills on time.
However, I routinely chat with investing clients who are not quite as organised when it comes to managing their budget. They pay their bills, but they don’t always pay them on time – and until now, this hasn’t been a huge problem.
That’s no longer the case. Now, paying a phone bill a week late here and an electricity account 10 days late there can drag your credit rating down and actually make it much more difficult for you to get loan approval.
If this sounds like you, then I’d strongly recommend you start following a budget, or some sort of system for paying your bills on time. Otherwise, you could face serious challenges when it comes time to try and borrow money from a bank or lender, whether you’re want to buy a car, a house or an investment property. Even getting credit approved for a phone contract or energy supply could prove difficult.
In saying that, there’s a chance these changes will be positive for you, as lenders will now be able to easily distinguish between high risk and low risk borrowers. If you pay your bills on time and fall into the low risk category, you may potentially have access to more competitive financial products – while those who are flagged as higher risk may be lumped with more conditions and higher fees.
So just how can you keep your credit score in check under the new reporting system, and ensure your application falls in the low risk pile?
Obviously, paying your bills and loan repayments on time is going to help keep your credit file looking good! If you think you’re going to be late in making a payment, contact the payee and ask them for a ‘due date extension’ in an effort to avoid the late payment showing up in your profile.
You should also check your credit report via Veda well before you plan to apply for a credit card or loan, as you’ll be able to see (and take steps to rectify) any potential red flags that could impact your ability to borrow. This will give you the best chance of maintaining a clear and clean credit history that allows you to borrow now and in the future.