Currently, we are seeing lots of people running into trouble with their credit rating. If you end up in trouble with a default on your credit file, it sticks for 5 years and can be a real thorn in your side when you go to apply for credit again. With new laws now in place from March 12 – repayments on accounts such as credit cards and loans made more than 5 days late may see you end up with a notation against your name for 2 years. It’s heavy stuff. We look at what you can do to stay savvy with credit now and in the future, and make it work for you!
By Graham Doessel, Non-Legal Director of MyCRA Lawyers www.mycralawyers.com.au.
You could be forgiven for thinking that credit is the enemy…
But we need to develop the ethos that credit is not something that is granted, it is something that is earned. At one point banks were practically throwing money at us. Now it’s tough and you have to prove yourself.
There is absolutely nothing wrong with using credit provided you make it work for you. In fact, not having a credit rating in this day and age can be just as difficult as having a bad credit rating.
Where people come unstuck with credit is getting to a stage where they are forever chasing their tail with repayments, falling behind. Or getting blasé about repayments and not realising the consequences.
Credit can be wonderful provided you maximise it to suit you. If you can’t afford it now you can have the privilege of paying for it later – but understand that you will pay at some point.
Payments on any bills which are more than 60 days late can be listed as a default on your credit file.
This default can remain on your credit rating for 5 years and can be very detrimental to your ability to gain further credit. Even if the account was later paid, the credit reporting agency generally does not remove the default but can mark it as paid.
Even defaults that show up as being paid can be enough for a declined home loan approval in the future. It is extremely important to keep a clear credit file because the repercussions will be felt for 5 years.
You also need to be organised to ensure you avoid the dreaded late payment notation against your name. Too many of those could be just as detrimental to getting a loan as a default would be.
There is no time like the present to start making credit work for you.
Begin by checking your credit file – which you are entitled to do for free every 12 months via the major credit reporting agencies Equifax (Formerly Veda Advantage), Dun & Bradstreet and Tasmanian Collection Service.
If you find a default, writ or Judgment on your credit file which you believe is there unfairly, unjustly or just shouldn’t be there at all – it may be possible to have it removed.
Here are some tips:
1. DO USE CREDIT: Having no credit history means there is nothing to calculate and the risk appears high to lenders. Start by borrowing something small. Repaying mobile phone plans, internet accounts, or store credit on time will appeal to anyone checking your credit score. Smaller purchases paid correctly contribute to approval for larger loans such as homes, vehicles, and businesses in the future because they show a person’s ability to repay. Positive repayment history on loans and credit card accounts may also help to boost your credit score after March 2014.
2. MAKE REPAYMENTS ON TIME: Repay any bills received by the due date. Repay over the minimum amount required on credit cards. If you are having trouble paying on time, contact the creditor as they may be able to work out a payment plan rather than listing the non- payment as a default or in the case of licenced credit, a late payment notation.
3. HAVE A STABLE ADDRESS: Lenders like to see stability. Furthermore, defaults are easy to come by when bills are sent to the wrong address. If you do travel frequently, consider a trusted family member’s address for all bills.
4. CHECK CREDIT FILE REGULARLY: You should check your file before you need to apply for credit. That way if there are any problems you can sort it out while there is no urgency, and save yourself embarrassment and disappointment from having credit declined.
6. DON’T LEAVE DEFAULTS TOO LATE: If there are defaults, don’t put up with them for 5 years. To find out more about removing/disputing a credit listing you don’t agree with, contact us here at MyCRA Lawyers on 1300 667 218.
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