Repair Your Credit Rating

Sydney Morning Herald

Wednesday August 11, 1999

Denise Cullen

Your financial reputation is an asset worth protecting.

Your telephone bill has "overdue" stamped on it in nasty red letters, your credit cards are stretched to their limits and the third lender you've approached about buying a new car has turned you down. Don't despair.

Patching up a battle-scarred credit rating takes time and effort, but it is possible.

Credit ratings are not like school report cards where consumers are rewarded with a fixed grade from A to D. Different scores are tallied for different types of credit applications, based on comprehensive and constantly evolving files held at Credit Reference Limited.

These contain personal information about consumers, including their current and previous residential addresses, their date of birth and driver's licence number, as well as any records of overdue accounts or bankruptcies.

Even if you've never missed a payment, there's probably a file with your name on it. Credit Reference holds the credit histories of more than 13 million Australian individuals and businesses. Any application you've made in the past five years for a home loan, credit card, department store account or other finance package may be on record.

And in addition to dobbing you in when you default on a payment, any one of more than 3,600 subscribers, including banks, credit unions, retailers, finance companies and telecommunications companies may obtain information about you online in seconds.

More than 50,000 consumers and businesses apply for credit every day, with personal debts in Australia now totalling more than $47 billion. In line with increased indebtedness, the number of credit inquiries from subscribers is rising every year, says the managing director of Credit Reference, Andrew Woods. "People are using credit more and credit providers are more conscious of the need to make an inquiry when processing applications for credit."

But the accessibility of credit today is leading an increasing number of consumers into financial strife, warns John Haywood, of Credit Help Line, a partly government-funded organisation which offers financial counselling over the phone. Credit Help Line receives an average of 30 calls a day, with some callers in tears or even suicidal as a result of financial difficulties.

Haywood says the biggest danger areas are expensive mobile phone plans and charges, low-deposit or interest-free loans and credit cards with high limits.

"Lending institutions are sometimes a bit casual about increasing limits on credit cards," Haywood says. "Beware of the consequences of potentially committing yourself to a debt you may not be able to afford."

But what if you leapt at the offer of a generous credit arrangement and now find yourself out of your depth? Unless your situation is irretrievable, don't be tempted to declare yourself bankrupt, Woods advises.

The total number of bankruptcies - rising to 6,873 in 1998, up from 3,800 in 1994, according to Credit Reference - indicates that an increasing number of people view what was once a source of stigma as a quick route to clearing debts and starting afresh. But the black mark of bankruptcy stays with you for seven years.

"We get situations in which people declare bankruptcy because someone has advised them that under current legislation they can be discharged from bankruptcy quite quickly - and that can release them from their current debts," Woods says.

"After they've been discharged, they contact us and can't understand why they've been refused credit because no-one has told them, 'Yes, you can get discharged, but it's unlikely that people will want to lend to you again for quite a while'."

According to Christian Mikula, a lawyer with the consumer protection unit of the Legal Aid Commission, agencies that claim they can get you a clean credit report are also worth avoiding.

"You have to change your name - it's legal, but it does catch up with you," he says. "You're paying money for what is a short-term solution at best."

If members of the public are refused credit or need information to assist in the management of their credit arrangements, the Privacy Act permits them to obtain a copy of their consumer credit file free of charge.

Requests should be mailed to Credit Reference Public Enquiries, PO Box 964, North Sydney, NSW 2059.

A complete copy of your file should be mailed within 10 working days from receipt of the request. An alternative "premium service" that dispatches the report within 24 hours by fax or express mail is also available for $15. Consumers may access this service through the Credit Reference Web site at www.credref.com.au/

But in the case of an ailing credit rating, prevention is definitely better than cure.

"You can protect your credit file by ensuring that you don't take on commitments that you're not likely to fulfil," says Woods. "And if something happens that's unexpected, keep in touch with your credit provider."

HOT TIP

Credit providers report default accounts regularly to Credit Reference Limited. The minimum amount is $100 and includes payment defaults where an account is more than 60 days overdue.

A tool kit to fix it

You've blown it, but a few simple steps can place a poor credit rating on the road to recovery:

Check your file

If a credit application is refused, ensure the information in your credit file is correct. For example, payment of an outstanding debt may not have been recorded. "If the file is out of date or inaccurate, you can query or correct it," says Andrew Woods.

Dispute any errors

If you disagree with a piece of information in your file but Credit Reference is not prepared to amend it, you are entitled to take the matter up with the Privacy Commission, which will investigate and may order compensation or an apology.

Start saving

The best way to restore the faith of creditors in your ability to repay a debt and keep your slate clean is to show a regular pattern of saving. "Put an amount away each week in a separate account," says John Haywood.

Be flexible

Coming to some sort of payment arrangement with your creditors is a more sensible option than skipping town. "If a default has been correctly listed, you can't remove it but you can improve it by paying it out," says Christian Mikula, a lawyer with the consumer protection unit of the Legal Aid Commission.

Seek advice

Financial counselling is available through the Credit Help Line (1800 808 488). "We can negotiate with creditors on a client's behalf, or empower them to do it themselves," says Haywood. "This gives the client valuable breathing space."

Do your time

Your recent credit history carries greater weight than a fall from grace years ago. "More note will be taken of a default that happened last month rather than four years ago," Woods says. Each item on your credit file is dated and automatically removed after five years. - Denise Cullen

© 1999 Sydney Morning Herald

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