How much do you know about your credit history?

How much do you know about your credit history?

If you’ve ever paid a bill late or missed a payment by its due date, then you’re not alone. New research shows one in 10 Australians has found themselves doing just that.

But what many may not realise is that ‘defaulting’ on a bill payment, as it’s also known, may lead to a mark on their credit file, which can come back to bite later in life.

The consumer research study, commissioned by RateCity, has revealed that young Australians are most at risk with 70 percent of defaults having occurred before age 35 and nearly two-thirds before age 30.

RateCity’s money commentator, Ali Cassim, said the results are worrying and suggest that many young people are unaware of the consequences of failing to make a bill payment on time.

“The research has also shown a trend towards a credit-based society as young Australians are taking on debt earlier than previous generations did,” she said.

“More than half of Australians under the age of 35 said they took out a credit card before they turned 25, compared with just 10 percent of baby boomers. We’re certainly seeing a trend to young people and plastic – clearly, a sign of the times.”

Debt life sentence?

The study also found that one in five Australians who had suffered a default still hadn’t recovered financially, and the impact was more severe for young adults, with 25 percent of people aged 18 to 24 saying they still hadn’t found their feet financially.

“What we’re seeing is that Australians who have had a financial blip are really struggling to overcome that, and, in many cases went on to further financial difficulty as a result,” said Cassim.

“Half of the people we spoke to said that a default had led to further money troubles, and again the 18 to 24 year olds were the most affected with three-quarters saying they suffered further financially.”

Incidents like this can impact your credit history, a record of your interactions and experiences with credit and debt, both good and bad. And, given those worrying results, it raises the question – how much do you know about your credit history?

What is the significance of a credit history or report?

Every time you apply for some kind of credit – whether a credit card or a brand new home loan – the lender will carry out a credit check on you. They want to make sure you’re a reliable borrower who will pay back their debts or, if not, adjust the terms of the loan accordingly. 

As part of this, they will pull up your credit history and examine it. Based on what’s gone on in your financial past, future creditors may decide to:

Deny you the loan, based on concerns raised by the report. 
Adjust the loan – perhaps by putting on a higher interest rate – because you’re a riskier borrower.
Approve the loan, as your credit history is spotless. 

Just think: You could go to all the trouble of carrying out a credit card comparison and painstakingly narrowing the options down to a single product, only for the credit provider to not even approve your application. 

What kind of information appears on your credit history?

Apart from your basic personal details, your credit report lists a number of pieces of information about you (which, consequently, affects your credit worthiness):

  • The credit cards under your name
  • Overdue or unpaid debts that were since settled
  • Defaults, which happen when payments are more than 60 days late
  • Credit applications (meaning that, if you apply for a car loan, it could influence your ability to secure a mortgage)
  • Repayment history, a relatively recent addition that lets credit providers view your success at meeting credit repayments on time 
  • Bankruptcies, personal insolvency agreements, court judgements and more, that are in your name

In other words, your credit history creates a fairly detailed portrait of you as a borrower, and indicates to the lender whether or not they should put their faith in you paying them back. 

Improving your credit history

A black mark on your credit history will be there for a while – five years, in the case of defaults and personal insolvencies, though longer is possible in some circumstances. You won’t be able to scrub these from your record – but there are other things you can do:

If there’s an incorrect listing on your report, you can undertake ‘credit repair’ and get it removed, either by contacting the credit reporting agency or notifying the creditor.
Credit reports nowadays record positive credit behaviour – so if you have a solid track record of making repayments on time and in full, it can benefit you, particularly if your instances of past credit impairment are relatively minor, so a missed bill payment doesn’t have to be a life sentence.

If you want to take a look at your credit report – which should be as normal as doing a home loan comparison – you can request a copy from a credit reporting agency. Just be aware that you’re entitled to only one free copy a year. Then, you can thoroughly check the information and not only correct any listings, but also know where you stand in terms of how a lender will look at you.

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Learn more about credit cards

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

Can I get a credit card on part-time/casual work?

Yes, as credit card providers look at your annual income amount as well as your occupation. Minimum income requirements tend to be between $30,000 – $40,000 for standard and rewards credit cards, however low income credit cards can have minimum income requirements as low as $15,000 per year.

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

How long does it take to get a credit card?

There are a few stages you need to go through to get a credit card; each one takes a different length of time.

Applying for the card online, over the phone or in person is the fastest step. This usually takes around 15 minutes, provided you have all of your documents handy.

After submitting your application, it usually takes between one to 10 business days for the lender to assess your eligibility. Some lenders offer instant approval, although you will need to send supporting documents before it is official.

Once your application has been approved, expect to wait between one to 14 days to receive your card in the mail. Keep in mind that delays can happen during busy periods, such as if the lender has launched a special deal.

How to get cash with just a credit card number

Banks and merchants usually will not allow you to access cash without a physical card, because doing so would open up opportunities for fraudulent activities. Even most non-cash credit card transactions (such as shopping online) require you to know the expiry date and CVV on your credit card in addition to the card number.

However, some banks offer cardless cash for transaction accounts. Using a secure app installed on your mobile phone, you can log onto an ATM and withdraw the money you need. This could be a practical and secure solution if you don’t have a card and need cash.

Is instant approval possible for credit cards?

Instant approval may be possible – but please note that the term may be misleading. “Instant” approval tends to mean that when you apply online the lender will let you know the likeliness of your eligibility for a credit card within 60 seconds of receiving your application.

Are credit checks mandatory?

In Australia it is impossible to get a credit card without the provider performing a credit check first. This is for your benefit, as it helps to prevent you from falling into avoidable debt.

What is the lowest monthly repayment on my credit card?

As a rule of thumb, this tends to be around 2-3 per cent of the outstanding balance. You can choose how much you want to repay each billing period as long as it is higher than this minimum required amount.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

What is CVV on a credit card?

CVV stands for ‘card verification value’, and is also sometimes referred to as a CVC or card verification code.

A CVV code is usually needed when the card is used online or over the phone as an anti-fraud measure. Without the cardholder being physically present to sign or verify the purchase, the CVV provides an extra layer of protection. 

If you’re using Mastercard or Visa, the CVV is the three digits located on the back of the card. If you’re using an American Express, the CVV is usually four digits and is on the front of the card.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.