Safeguarding this file is an important part of the finance application process.   Your credit file contains credit applications, overdue credit accounts, payment defaults, clearouts (as a missing debtor), commercial credit information and public record information. You will have a credit score calculated from your credit file. From September 2018, there is additional information about the credit products you hold on your credit report including:

• The type of credit products you have held in the last two years
• Your usual repayment amount
• How often you make your repayments and if you make them by the due date1

Did you know that a score of less than 500 will severely affect your ability to gain finance from many lenders? Do you even know what your score is or how easily it can be affected? What is your credit score? Credit scoring is a mathematical assessment of the data included in your credit report. The credit score is calculated by the credit reporting agency using a number of complex formulas. The score shows the likelihood of an adverse event recorded in the next 12 months. Scores range from zero to 1,200. The higher your credit score the lower the risk that you will default. A ‘good’ credit score is between 622 and 7252. Credit reporting The credit report is the basis for your credit score. In Australia there are four credit reporting agencies: Equifax, Experian, Dunn & Bradstreet and Tasmanian Collection Service. You can access a free copy of your personal credit report through the following online providers: Creditsavvy, Creditsimple, Finder, Getcreditscore and WisrCredit. Your credit report is very important as it provides the information used to calculate your credit score. You will have a credit report if you have applied for any form of credit. This can include:

1. phone contracts
2. credit cards
3. residential or personal loans, or
4. hire purchase

So what affects my credit score? There are some behaviours you can control that will affect your score:

1. late payments,
2. overuse of credit, and
3. limiting the number of credit applications

We have had clients lodge a loan application with us only to be rejected due to a poor credit score. When we investigated the cases we found there had been multiple credit enquiries listed in a short period of time. What the clients didn’t realise was that every time they were offered (and accepted) a new credit card (at their local grocery store and service station) these services were individually lodged as a credit enquiry.

Our clients had also sought pre-approval from various lenders while they were searching for a new home. These pre-approvals were also listed as a credit enquiry. When the time finally arrived to acquire their home loan, it appeared they had submitted many applications for a range of credit over a very short period. This history resulted in a low credit score and subsequent rejection by the lender.

Surely the lender can understand what really happened? Unfortunately many major lenders are now treating credit scores as a black and white decision. If your score is too low then the loan application will be rejected – no questions or discussion!

What should I be doing?

You need to be conscious of your credit report. Make sure you meet all your credit obligations. If you are considering refinancing in the next couple of years, be aware of all agreements, pre-approvals and enquiries you make (where you sign a privacy agreement) as these will generally result in an entry on your credit report. These entries stay on your file for 5 years. 1. ASIC Money Smart Credit Scores 2. Finder, Equifax Score