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.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

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.

What happens if I have a bad credit score?

If you have a bad credit score, you might encounter two main problems. First, the lower your credit score, the more likely you are to be rejected when you apply for a loan or any other credit product. Second, if your application is accepted, the less likely you are to qualify for the lowest interest rates.

Why should I check my credit rating?

There are two reasons you should check your credit rating: so you have a better understanding of your financial position, and so you can take action (if necessary) to improve your credit rating.

Lenders use credit ratings or credit scores to assess loan applications. The higher your score, the more likely you are to get approved, and the more likely you are to be charged lower interest rates and lower fees. Conversely, the lower your credit score, the less likely you are to get approved, and the more likely you are to be charged higher interest rates and higher fees.

Why do different credit reporting bureaus use different scores?

The reason Equifax, Experian and Illion use different scores is because they are independent companies with their own different methodologies. As a result, a score of, say, 700 would mean different things at different credit reporting bureaus.

However, the one thing they have in common is that they divide their scores into five tiers. So if you receive a tier-two credit score from one bureau, you will probably receive a tier-two score from the others, as well.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

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.

What's the best credit card for rewards?

There is no one-size-fits-all best rewards credit card. It's best you research what type of rewards program you'd like, as well as the fees, interest rate and conditions associated with those types of cards before making a choice. 

Rewards credit cards can also come with high annual fees that may end up nullifying the rewards, so think how often you use the card to decide whether the benefits outweigh the extra cost for you. A card with a lower annual fee might require a lot of spending to get any useful rewards, while another card with a higher annual fee might need fewer purchases to get a reward. 

How do I apply for a credit card online?

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.