KNOW THE RULES

Applying for credit

What lenders look for

Each lender uses its own criteria to determine your eligibility for credit. But all lenders gather information about you - and your previous credit experience, from your credit application form plus your ‘credit bureau file’ held with a credit bureau agency such as VEDA Advantage. This file includes credit details such as previous late payments or collection and legal actions (click on ‘What a credit bureau file involves’ in this section to learn more).

As a credit consumer, the main factors to be aware of are the ‘three Cs’ of good credit.

The ‘three Cs’ of good credit:

Client history

How responsible you have been with credit in the past.

Capacity

Your ability to repay the loan based on your income and financial position.

Collateral

This is security for the lender in case you don’t repay the loan. A house, for example, would be used as collateral for a home loan.

Taking care of your ‘three Cs’ will keep your credit bureau file healthy.

How your credit application is assessed

Lenders look at a range of factors when they consider your credit application. These may include:

  • Your employment history
  • Your monthly income
  • Your current expenses (including existing debt repayments such as home loan, personal loans etc)
  • Home ownership
  • Whether or not you have applied for – or been refused credit, with other lenders.



Read the fine print

Sometimes you may come across an offer for credit that sounds like a good deal. But always read the fine print. Low introductory interest rates – sometimes called ‘honeymoon rates’, may appear attractive, but they often jump to a much higher rate further down the track. Be aware too, of any fees and charges that may apply.

Your credit bureau file

To find out how well you have managed debt in the past, lenders look at your ‘credit bureau file’ for information about you and your credit history. Your credit bureau file is stored by a credit bureau.

In Australia, the main credit bureau for consumers is VEDA Advantage (formerly known as Baycorp) ( www.mycreditfile.com.au).

A credit bureau file is created when you first apply for credit. Once your file is established, information from subsequent credit providers is used to update your record. With some credit providers it is important that applicants applying for credit have an existing credit history as part of their assessment criteria.

Not everyone has a credit bureau file and not all credit providers submit information to the bureau.

In Australia, we have a ‘negative’ credit recording system, which means only credit enquiries and credit related problems such as missed payments will appear as a listing on the database. This can be for any sort of bill, from your phone bill to your credit card account. Always be aware that missed payments could affect your ability to secure credit with the lender of your choice in the future.

What a credit bureau file involves

Your credit bureau file contains the following:

  • Identification - includes your name, address (past and present), date of birth, your current and previous employer/s and your driver’s licence number.
  • Credit applications - details of any applications you have made for credit in the past five years, including the amount and type of credit. Be aware that these enquiries may include finance related credit enquiries as well as enquiries from others who provide credit such as phone companies.
  • Credit defaults - defaults may be recorded by credit providers where you have not met your repayment obligations. For example, any repayments that are overdue for sixty days or more are listed on your file for five years. If you subsequently repay any credit defaults, it will be noted on your credit bureau record.
  • Credit infringements - if a creditor has been unable to contact you and has reported you as a ‘missing debtor’, it is recorded on your file for seven years.
  • Other information - details of any bankruptcies or court judgements against you are also noted on your file.

In some cases, the file will contain a note from you that you would like prospective credit providers to consider. This may be an explanation of a credit default or a name change.

Check your own credit history

It is a good idea to check your credit bureau file at least once a year to make sure the information is accurate. To get a copy of your credit file contact VEDA Advantage on 1300 921 621 or visit www.mycreditfile.com.au. A small fee may apply depending upon the level of information you request as well as the time and method you request for delivery of the information.

What if there’s a mistake?

The first time many people become aware of a mistake on their credit bureau file, is when they are unexpectedly knocked back for a loan. So, it’s worth taking a look at your credit bureau file before you apply for credit.

Check the accuracy of every entry on your record. If you do find a mistake, contact the named enquirer or your credit provider and the credit reporting agency in writing, asking them to amend the file.

If you have difficulties amending your file, you can take your complaint to:

  • the Financial Ombudsman Service (www.fos.org.au) for banks, building societies or credit unions
  • the Telecommunications Ombudsman www.tio.com.au (for phone companies)

Keep your credit history healthy

Having a good credit bureau file makes it easier to get credit. It also means you have will a wider range of lenders to choose from, potentially giving you access to better terms.

The following steps can help to keep your credit bureau file healthy.

  • Fill in credit application forms consistently. For example, always entering your name the same way will help to reduce errors in your file.
  • Keep credit applications to a minimum. Applying to a large number of lenders - especially if your applications are rejected, may imply to potential credit providers that you have credit issues.
  • If your file shows any outstanding credit defaults, repay them if you can, and ask that your file be amended. The default will still be listed, but will no longer appear as unpaid.
  • Always inform credit providers when you move. This way bills will arrive on time – letting you pay on time and maintain your good credit bureau file.
  • Pay all your bills on time - unpaid utility and phone bills can affect your credit rating.
  • Even if your credit bureau file is imperfect now, it is important to manage credit wisely in the future. Your credit bureau file can improve over time.