Being in credit reporting prison

The secret society of Australia’s credit reporting

Australia’s credit reporting system has often been described as a secret society. Certainly, there is a general lack of understanding of how it operates. Often, people go through life blissfully unaware of the consequences that applying for multiple sorts of finance or missing a payment can have. Unfortunately, credit reporting prison is a reality, and it can stop you from getting finance when you need it most.

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. Common sense 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 these processes 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 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. You can be left in credit reporting prison with no clear way out.

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. Fortunately, these listings are contestable and there is a way out of credit reporting prison.

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.

Get out of credit reporting prison. Take your first steps towards restoring your credit rating and improving your credit score.

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