Presently the minimum amount a credit provider may list as a default is $100.00.
When people become aware they have a default recorded on their credit file for small amounts their initial response is often a lack of regard as they feel given the amount is so small it will not negatively affect them, after all, one would think that a little default of say $100.00 could not possibility be that important. Unfortunately the reality is even very small and seemingly irrelevant default listings can course people real problems when trying to secure future credit, but why is this ?
It is important to keep in mind that many credit providers use peoples credit history’s as a sorting method or more to the point, a culling method.
Let’s look at a bank, with so many different loan products on offer one can only imagine the number of credit applications they receive every day. It would be impossible for them to review each of these applications manually so in many cases the initial credit review is automated, in other words a computer does it and one of the first thing the computer looks at is the applicants credit history.
It is clear that in reality there is a very big difference between a $100.00 paid default to a telecommunication company and a $10,000.00 unpaid default to a bank however when most credit providers automatically review a person’s credit history it is the event they are interested in and not necessary the magnitude of the event.
In other words regardless of the nature of the default a credit provider will often decline the application regardless, it is just a fact a default is recorded.
This is very common with unsecured credit applications such as credit cards or personal loans as in many cases the computer is triggered to decline an application if any negative credit listings are found, regardless of the size or relevance to the applicants acquial financial position.
In 2014 there are a number of changes to the credit reporting laws coming into effect, one of which is an increase to the size of the minimum default amount, this is increasing from $100.00 to $150.00.
This may help some people escape the pain of a default listing being recorded on their credit file however credit providers will still be able to record a default listing for an account in arrears in excess of $150.00 which in many cases still represents a minor event yet these people may still struggle obtaining finance.
Many of the new credit laws coming into effect in 2014 are positive and will help mend what is currently a fundamentally floored credit reporting system.
One change being implemented that has the potential to significantly improve the current credit reporting platform is the move to positive credit reporting. This will allow for someone’s positive credit behaviour to be recorded along with the negative. This will give a credit provider a fair more objective view and hopefully will allow for a more rational credit assessment of the applicants true financial position.