Australia’s credit reporting system doesn’t have as much of an influence on our everyday lives as the American system. However, in the “new normal” world of massive data breaches and identity theft, checking your credit report should form a part of both your online safety and financial strategies.
Why Have a Credit Reporting System?
If you were to lend money to a friend or family, you generally do so with the expectation that they will pay you back. You trust them, they’re good for it. Well, hands up if you’ve ever been disappointed? Maybe they didn’t pay you back. Perhaps they paid you back in dribs and drabs over a longer time period than you were expecting. Inconceivably they might even have taken an overseas holiday while still owing money to you! All these and more are reasons why you shouldn’t loan money to friends or family, but that’s a topic for another day.
Banks and other institutions want the same. When you apply for a loan or another type of credit, they want to be assured that you will pay them back. They don’t know you. They’d rather rely on cold hard historical facts to determine your trustworthiness. This is where credit reporting come in. Your credit report contains information on your finances and credit worthiness.
Australia used to run a negative credit reporting system. That means only negative events such as defaults, bankruptcies and court judgements were recorded. There was no information available if you were the type of person that manages credit well. In 2014, Australian privacy laws changed to allow a move to a comprehensive reporting system. This has the potential to provide more information so credit providers can better assess your capacity for credit. A flow-on effect is to allow smaller companies to compete with the Big Four banks, as they can better assess risk.
However, as of May 2017, only three firms were reporting data comprehensively for other institutions to access – RateSetter, Toyota Finance and Nimble. That’s less than 0.1% of credit accounts being positively reported. Obviously, in order for the system to be of any use, data needs to be provided. If voluntary participation hasn’t reached 40% by December 2017 (unlikely!), the Government will release legislation to mandate participation.
On 9th October, NAB announced it would begin reporting from February 2018. This is likely to encourage the other banks to comply.
What’s in My Credit Report?
- Any applications for credit that you’ve made – even if you didn’t take up the credit.
- Organisations providing you with credit, the type of credit you have, and your credit limits.
- The maximum term of the credit.
- Whether your repayments are principal and interest, or interest only.
- Your history of repayments, including late or missed payments, and defaulted loans.
- Late payments are payments over 14 days late, but only for credit and loans – telecommunications and energy/water bills will not be recorded.
- Defaults are debts over 60 days old, that have had a collection process started.
- History for up to 7 years of a bankruptcy or 5 years of a debt/personal insolvency agreement
- Court judgements awarded against you.
What is a Credit Score?
Your credit score is a number that indicates your credit worthiness. The higher the number, the better your credit worthiness. This may result in an increase in the amount you can borrow, or (eventually) a decrease in the interest rate you will be offered.
I always thought that by not having any debts, you would have an excellent credit score. This isn’t the way it works, however. Having no credit accounts means they can’t assess you. If you have no or minimal credit amounts without a default, your score may actually be lower than someone who has multiple credit accounts without a default. Crazily enough, if you were to pay off all debts and shut down all credit accounts, this can be damaging to your score! By that time, though – do you really care? If you are in a good position, don’t base your financial life around a credit score. The new system is still in its infancy here. Just make good financial decisions and one day you may never need credit again anyway.
In Australia, not every credit reporting body offers a score. Also, the credit provider themselves is likely to calculate their own score for you. Your score will be different depending on how much information they hold on you. So if you are looking for a loan from Bank A, who you hold multiple accounts/past loans with, your score is likely to be higher than Bank B, who you’ve never dealt with before.
I Don’t Have Debt – Why Should I Check My Credit Reports?
All Australians are entitled to one free credit report each year from each of the three Credit Reporting Bodies (CRBs). You should order your credit report yearly for two related reasons:
- As a check your identity hasn’t been stolen. In 2014-2015 there were more than 1.5 million reports of identity theft incidents in Australia, with an average cost of $400 each. Now consider – that’s only reported incidents. Also, identity theft is much more than the loss of money. Chief Mom Officer from the USA has experienced identity theft. While she didn’t lose money, a lot of time and (I imagine) frustrating phone calls were needed to sort things out. If a scumbag has managed to amass enough personal information on you to impersonate you, one of the things they may do is apply for credit in your name. This can leave you saddled with debt that is not yours. It can also affect your ability to apply for credit next time you wish to take out a loan.
- To ensure that data reported to the CRBs is accurate. People make mistakes. You may have been late or defaulted on a payment, but come to an agreement with the credit provider, yet they’ve neglected to update your file. You may find a duplicated loan, or an incorrect amount. Make sure that your demographic and contact information is correct.
If you find an error, do not pay someone else to fix it for you. It might take a bit of back and forth and paperwork, but the improved system should make it easier for you at NO COST. Providers have an obligation to work with you to correct errors and resolve disputes. If you are having trouble with credit or debt, approach your credit provider, or search for free financial counselling services. Please don’t pay these companies hundreds (or more) dollars.
A Note on Data Security
The recent breach of Equifax in the US (and their execrable behaviour) begs the question – does having all this data recorded increase the risk of my identity being stolen? The short answer is yes, yes it does. However, this is not a system you can opt-out of. If you never apply for credit, then it’s likely there will be minimal data kept on you. However, there will still be a certain amount of data there. The recent federal Treasury’s Open Banking Review lists security and privacy of data as an issue to address. What will that practically mean for the future, though?
Last year I ordered my credit report from one of the providers, and it came back that I had no history, so they couldn’t provide me with one. Since then, we applied for a credit card with no foreign transaction fees (to take on our New Zealand trip), so I was looking forward* to seeing what popped up. Each of the headings links directly to the free credit report application page.
*I’m trusting that if you’re reading my article, you are the type of person that understands my anticipation.
Note: even though Equifax came out first in the table above, their basic report and the data breaches mean I’d probably put them at second. It’s my table and my opinion, so I can do that!
Yes, they lost data then displayed disgusting behaviour in the aftermath. As previously mentioned though, you can’t opt out of this system, so it’s a case of forewarned is forearmed.
Ease of Use: Very easy. This is a simple, one page online form. The only numbers you need are your licence and/or Medicare card.
User Interface: This had the most modern looking user interface, and the easiest to use.
Proof Required: You must have at least a Drivers Licence or a Medicare Card. All data entry for proof is done online, no need to upload anything.
Time to Receipt: 8 days.
Report Delivery Method: Password protected PDF via Email
Report: 6 pages, including the title page. A few dry data points on each page. Only consumer credit information included, not commercial credit information. Granted, I don’t have a particularly exciting credit history, as the only credit we’ve had for years is the mortgage (not mentioned in my report), and the travel credit card we applied for last year. The report contained the following headings:
- Personal Information
- Summary of Information Contained within this Report
- Consumer Credit Information
- Other Access
Ease of Use: You must create an account with Dunn & Bradstreet to be able to order your report. This means using an email address and creating a password. Make sure it’s a strong one! They also ask you for three security questions, which is no longer good practice.
User Interface: Hello, 1990’s, here’s where you’ve been hiding! Pretty awful interface, take a look for yourself.
Proof Required: You have to provide a copy of your passport, drivers licence, birth certificate or proof of age card. You can upload a scan online, or send it by email, fax or post. While you only need to supply one piece of evidence, the submission window says you have to provide two if you use email, fax or post. Confusing.
Time to Receipt: 4 days. You can see that I started my application, then saved it so I could go to work and scan my proof of identity. The email they sent to resume my application just takes me to the Dunn & Bradstreet home page, so that was a bit confusing as well. I would have expected it take me to the login page, at least.
Report Delivery Method: You can log into the portal and retrieve your report online, or you can get them to mail it to you. Note that after I submitted my documentation, I received an email stating “incomplete application”. My first thought was “what now?!”, but all the email says is that in order to access my report, I need to log back into my account. Once I log back in, my report will be available within 3 days.
Report: 12 pages, including an introductory letter on the first page. This report is a lot more detailed, with explanations for each section, even if there is no data there. Their formatting leaves a little to be desired, as a grey decorative bar obscures some of the text, but it isn’t terrible. Overall a very detailed report.
Ease of Use: I actually found this one to be the biggest pain in the bum. You can only request your report by email or by post, you can’t submit anything online. Maybe this is a security measure? You have to download an application form in PDF format. It isn’t even a fillable PDF. Maybe I have too high an expectation?
User Interface: Modern look, but it’s only an informational page, not an online form..
Proof Required: The worst. You have to send in a minimum of three documents as proof, broken down into:
- At least 1 document from Group A PLUS
- 1 document from Group B AND 1 document from Group C OR
- 3 documents from Group C
Time to Receipt: 9 days.
Report Delivery Method: Password protected PDF via Email
Report: 10 pages, start immediately on the first page. This one doesn’t hold as much explanatory information as Dunn & Bradstreet, but it gives me a score! If I had more activity, then theirs would appear to be the most visual report. They get kudos for that, because information is much easier to consume if shown as graphs and colours.
Order Your Credit Report/s!
Because you get 1 free credit report each year from each provider, I would suggest ordering one every four months. That way you cycle through what information each body holds on you, and can keep a regular eye out for fraud.
Creditsmart by the Australian Retail Credit Association (Recommended by the OAIC, don’t worry.)
Credit Score by Spending Hacker
Have you ever checked your credit report?