Get credit for being a good repayer
If you are looking for personal finance and like the majority of Australians finding it hard then you might be in for a change. Reports in the media suggest that the way your credit score is compiled and viewed by credit agencies and leading lenders is about to change.FOR too long, banks and other lenders have judged your credit risk based on failed applications and defaults, but that is changing.
Positive credit reporting is coming, and if you are a good bill payer, you should be able to use it to your advantage.
Many Australians don’t understand how their credit report is compiled and are unaware of the information credit providers use to make their lending decisions.
At present, your credit report will list all loan applications but not whether they were approved, any defaults of more than 90 days and bankruptcies.
Essentially all the bad stuff. The good stuff won’t be counted until 2011.
Financial planner Joel Palmer of Palmer Portfolios says every time you apply for finance or default on a payment, the details are recorded in a database that is accessed by all financial institutions.
“If you apply for 27 credit cards in two months, or miss a few too many payments, you’ll end up with a black mark against your name and find it next to impossible to obtain new finance,” he says.
“Positive credit reporting forces banks and credit card companies to report our good qualities, not just the bad.
“Let’s say you’ve had a home loan for 15 years, never missed a payment, and always had your credit card under control.
“If Australia had a positive credit reporting system, you would then show up on the database as an extremely good credit risk.
“The major benefit for you is that banks will then be falling over themselves to lend you money.”
Credit reporting agency Dun & Bradstreet’s chief executive, Christine Christian, says positive credit reporting is used in the US and other developed countries.
“People think paying an overdue debt will remove the listing from their credit report: This is untrue. Negative records such as collection accounts, late payments and bankruptcies stay on your credit report for up to seven years, even if you pay them off,” she says.
Ms Christian says people wrongly think low-value or non-bank debts are less important than big ticket items such as a home mortgage.
“The size of the debt and its source is irrelevant all negative payment behaviours will be listed on your credit report,” she says.
Anyone can access a free copy of their credit report through a credit reporting bureau.
Article: news.com.au
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