How to Read and Understand Your Credit File
Going through your credit file is a great way to take control of your financial standing, but it’s not the easiest thing in the world to decipher. It’s worth the read since it shows you what information credit bureaus are looking at and gives you an idea of what might be worth following up on.
A credit file typically includes:
• Age of file
• Defaults and impairments
• Repayment History Information
Let’s take a look at each in more detail.
Age of File
A credit bureau can only track your information from the date it first found out about you. Unlike births and deaths, bureaus only get information about you when you engage with a product that requires a credit check.
This can be something as simple as getting your first mobile phone, or as significant as a mortgage.
The date shown here represents the first time the bureau saw you.
Likely impact on your credit score: The longer a bureau has known about you, the more certain they can be about your creditworthiness – so the age of your file could play an important part in their assessment. Lenders may also have rules about the minimum age a credit file must be, so it’s important to understand this information.
As you move through life, credit bureaus will record your current and previous addresses based on the information they receive from institutions who perform credit checks on you.
If there are addresses missing from this list it may be because your credit report wasn’t checked or enquired on by any institution during your time at that address.
More importantly, if there are any addresses listed where you’ve never lived, this may indicate either an error by the credit bureau or more likely a credit check was performed with that address.
Likely impact on your credit score: Credit scores take into account many different factors, as do some financial institutions, and the duration spent in different homes can be seen as a sign of stability (or instability). Further monitoring this information may highlight whether your credit file was accessed without your permission.
Often people have only one, but if you’ve changed your name for any reason (e.g. marriage) then there may be some other identities created which are related to your credit file.
If you see a name that you don’t recognise, you should raise a query with the bureaus and have this updated. Also double check the credit enquiries on your file to ensure you recognise each of them.
Likely impact on your credit score: Different identities could result in separate credit reports being created for yourself which may have different scores recorded. Also once a bureau detects this, or is alerted to this, they will attempt to combine these reports to recalculate your true credit score.
This information is often not available unless a credit bureau has received information about your employer relevant to a financial product enquiry.
If there is an error here, you should follow up with the credit bureau and have it corrected. It’s always best to have up to date and accurate information on file.
Likely impact on your credit score: Minimal.
Defaults and impairments
This is one section you ideally want to have empty, but we understand that life happens.
If you see something unexpected here, it’s worth following up with the relevant bureau as it could be that there’s a debt collection action against you, or some sort of court judgement.
Even small things like not paying a final utility bill when you’re in a sharehouse can come back to haunt you.
Likely impact on your credit score: Catastrophic. Showing a historical inability or unwillingness to pay back previous debts puts a big dent in your credit score, and is frowned upon by most lenders.
It would be likely to limit your ability to get credit in the future, and could also mean that you would be charged a higher interest rate due to the potential increased risk in lending to you.
Anything unexpected here should be challenged and followed up, and any outstanding payments should be settled otherwise.
When you apply for a product that requires a credit check, this is where it will appear.
If there are missing enquiries here it’s often because companies do credit checks with one bureau, and that information may not have been shared with other bureaus. This will be changing as comprehensive credit reporting comes into Australia.
This is one area where you would be better off not telling bureaus about missing entries.
Likely impact on your credit score: Substantial. Enquiries show an appetite for credit, and while credit is a lifestyle choice, being seen as being too ‘credit hungry’ can endanger your chances of getting credit.The old adage of ‘shopping around for a good deal’ can actually hurt your credit score if those enquiries are reported – even if you don’t take up the offer.
Accounts represent enquiries which were taken up. These are most often credit cards, personal loans and mortgages – financial loans with a lifetime.
Historical accounts may also be represented here, so if you see an account that isn’t active don’t worry, as long as it shows ‘Closed’ – if not, you should probably let the bureau know, it could have been an oversight or simply not reported by the financial institution when you closed your account.
Likely impact on your credit score: Considerable. Accounts also represent your current known exposure to credit and the type of credit.
A mortgage may be expected, but having multiple open credit cards could be viewed as a sign of living beyond your means, and having a relatively high exposure to credit.
The ability of bureaus to make scoring improvements from accounts and repayment history will improve a lot more during 2020 and beyond in Australia, as all financial institutions have come online with Comprehensive Credit Reporting.
The positive side of this is that accounts can now show your Repayment History – so if you’re up to date, everything will look green. If you’ve missed payments it won’t be as good. If something is showing up incorrectly, contact the credit bureau to get it fixed.
Explaining the impact of repayment history on your ability to borrow was recently summed up by Wisr CEO Anthony Nantes:
“Imagine going to an interview and only being able to talk about the things you did wrong. Knowing a person’s repayment history is being able to talk about the good things you did as well – yes you have a credit card, but hey you haven’t missed a payment in two years, and there’s the proof!”
Create a free credit profile now to see where you stand.