Being in Credit Reporting Prison
The Secret Society of Australia’s Credit Reporting
I have heard of Australia’s credit reporting system described as a secret society. Certainly there is a general lack of understanding of how it operates and often people go through life blissfully unaware that each time they apply for any sort of finance, or are late making a payment, the effects can be disastrous.
While most people have heard of a credit report and are aware they have one somewhere, they don’t know much more. Sometimes people are surprised when they are declined credit due to a credit listing they were not even aware of. From a credit provider’s point of view there is little difference between a small misunderstanding with your phone carrier or a major default on your home loan. But how can this be right? Surely a credit provider can see that a missed payment to a phone provider that was paid as soon as the person became aware of it is not as important as a mortgage default that remains unpaid. Commonsense would say the two items are very different in severity, however in today’s automated world most credit providers rely on computers to assess risk.
Most of these systems are triggered to react to a negative listing, regardless of the nature of the listing, and decline the application automatically. This means that one small blemish on an otherwise perfect credit report can carry the same penalty as a serious default. I would like to say that’s as bad as it gets but I am afraid there’s more.
Who Controls Your Credit File?
Much of the contents of your credit file is gathered by organisations such as credit providers who enter and update the information. A great deal of this process is manual, so the information in your credit file is often only as accurate as the people entering it.
Let’s say that you did miss a payment and a default was listed against you. Wouldn’t you think that the listing would be updated when you made the payment? Unfortunately such an update relies on people manually entering the updated data and believe me when I say this does not always happen. Even if the credit provider does update the listing to show it as paid, the listing will remain on your credit file for years, so the problem is far from gone.
Multiple Checks on your Credit File
Now for a real shock; let’s say that you had no negative credit issues and wanted to borrow money for a new home. You think that it would be a good idea to have a few mortgage brokers on the job so you can compare a few options. Now imagine each of these brokers approaching several potential lenders on your behalf, each of which conducts a credit check on you. You can imagine that after a few weeks you could have quite a few enquiries for finance listed over a short period of time on your credit report. This shouldn’t be a problem though right? Wrong!
You see, when a credit provider reviews your credit file all they can see is the enquiries. They have no way of knowing why the enquiries didn’t lead to a loan and almost by default will assume there is something you are not telling them. The application could be declined on that basis. It sounds crazy but it’s true.
Please don’t think I am in any way knocking the mortgage brokering industry. The majority of them are industry professionals and can be of enormous help when trying to secure finance. I am merely pointing out credit problems people can experience even when they have no negative listings.
If you find yourself on the wrong end of a negative credit listing, the effects can be far reaching:
Court Writs & Summons – 4 years
Payment Defaults, Court Judgments and Credit Enquiries – 5 years
Bankruptcy & Part 9 Debt Agreements & Clearouts – 7 years
External Administrations & Previous Directorships – 10 years
Credit Repair and Credit Prison
Let’s deal with the here and now. Say you have applied for credit and have been refused due to a negative listing on your credit file. You don’t feel the listing is correct and want to sort it out. What do you do and where do you go? Most would start by calling the credit provider that made the listing. In many cases the consumer will end up talking to a call centre and after being passed from person to person will be told there is nothing they can do. What then?
The truth is there is no documented process to rectify an incorrect listing. Customers are free to contact the reporting agency, the credit ombudsman, the communication ombudsman etc, but this often leads to wasted time and frustration. There are companies that specialise in assisting people that have genuinely contestable or faulty credit listings. This industry is known as Credit Repair or Credit Restoration.
At Clean Credit, the number one question we are asked is “does this credit repair thing really work?” We fully understand why this is asked. This industry is quite new in Australia and there is little information available for the general public on the subject. Unfortunately the industry does have its share of questionable practitioners which does not help things. The good news is the answer to this question is yes, in most cases negative credit listings can be permanently removed from credit files.
How Credit Repair Can Help
The reality is the law requires anyone intending to make a negative listing on a credit report to follow a process prior to lodging the listing with the credit reporting agencies. The truth is in many occasions these processes are not followed, generally because the creditor was not aware of their obligations or even more disturbing they did not care.
In many cases when confronted by the client, creditors will flatly deny that due process was not followed or will simply refuse to discuss the matter at all. It’s often not until these creditors are approached by a third party that has a very good understanding of the law and the process that these matters can be resolved.
The sad fact is that each year there are literally tens of thousands of incorrect or inappropriate listings entered on people’s credit reports. These listings are contestable.
Reputable credit repair companies such as Clean Credit can be a good option for the consumer, as we have a good understanding of the Privacy Act laws and relevant State and Federal Legislation, as well as the knowledge to deal with such situations in an efficient manner.
Credit Repair and Credit Prison
Staying off the radar is the best answer. Here are some tips to help you stay out of trouble.
- Make sure the creditor is immediately informed of a change of address or contact details
- If the customer notices a direct debit has stopped but the debt still exits, don’t wait to be contacted by the creditor, call first
- If there is an issue with making a payment, call the creditor immediately to discuss
- If the debt cannot be paid right away, talk to the creditor about a payment plan. If a payment plan is agreed on, make sure it is honoured
- Make sure everything is in writing
Unfortunately it’s not a perfect world and credit reporting is no exception, the most important thing is offering the general public the information, tools and contacts to effectively deal with the situation should things not go to plan.
Take your first steps towards restoring your credit rating and improving your credit score.