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Do fines affect your credit rating?

Do fines affect your credit rating?

Your credit rating takes your credit history into account to assess how efficient you are at borrowing and repaying money. In other words, your credit rating is the basis of your financial reputation. Banks and other financial institutions make use of it to determine whether to approve you for a loan or not. 

Maintaining a good credit score can be simple, as long as you are aware of the factors that can hurt it. Unfortunately, a few of these factors tend to be less known than others, fines being one such example

What factors negatively affect your credit rating?

A low credit rating can spoil your financial plans as it earmarks you as a potential risk for various mainstream lenders out there. While nobody tanks their credit score on purpose, occasionally, they end up doing something that damages their credit rating without their knowledge.

Fines

So, do fines affect your credit rating? Perhaps not as much as they used to.

Every parking ticket that is issued against your vehicle is reported to a collection agency. Even library fines and other late payments, if left unattended or unpaid, might end up in court. Depending on the circumstances of the case, the court may then award you a higher penalty or record a conviction if you are found guilty. However, it is unlikely that such unpaid fines will impact your credit score. 

According to the regulatory changes made in February 2020, writs and summons are no longer considered publicly available information and cannot be listed on credit reports. Thus, your credit score isn’t likely to be affected by unpaid speeding or parking fines that are taken to court after the regulatory changes came into force in February 2020. However, that doesn’t mean you should not pay your fines because there are legal implications you need to worry about.

Multiple loan and mortgage rejections

Whenever a credit card or loan application is made, it is officially documented by the bank or lending institution in question. For subsequent applications, even if you attempt to pursue a new lender, past rejections could pose problems for you. While rejections don’t directly result in your credit rating being affected, more applications may mean more hard inquiries, which  might reflect negatively on your credit rating. 

Whenever you are thinking of making a credit payment or filing a new application for a mortgage, do consider scanning through your credit file first as a precautionary measure. This helps you to spot any inconsistencies, should there be any, and proceed with the most sensible course of action.

Questions you may have

What is a good credit score?

Across Australia's major credit score providers, Experian and Equifax, there are five tiers, ranging from "below average" to "fair" to "good", "very good", and "excellent", with your score designating where you sit. As the tiers suggest, an Experian credit score between 625 and 699, and an Equifax credit score between 622 and 725, is technically considered to be in the range of "good". Anything above this is even better.

However, lenders will typically favour the borrowers with the highest credit scores which means that applicants with a "good" credit score may not be offered an interest rate as competitive as one offered to a borrower with a "very good" or “excellent” credit score.

Why should I check my credit score annually?

You may not need to get your free credit rating every year, but it can help you stay informed. A yearly free credit report can help Australians keep track of the impact of various financial transactions on their credit score.

Your credit score helps inform financial organisations, particularly lenders, about the sort of payer you are. Depending on how you've paid down debt in the past, it will have affected your credit score in various ways. In Australia, the inclusion of Comprehensive Credit Reporting (CCR) means that you can find out which transactions affect your credit score positively, as well those that have a negative impact.

Because of this, you may want to consider getting a free credit report once a year irrespective of whether you’re planning to apply for a loan or take on other debt. Checking your credit report can tell you if there are errors in your credit file, which affect your credit score and need to be corrected.

Where can I check my credit report for free?

While you can get a free credit report in multiple ways, RateCity's own credit checking system allows you to find your score from two credit history systems, Experian and Equifax. 

When you request your free credit report, you'll likely need to supply some personal information, such as your name, contact details, and a personal identification, such as a drivers license number or another form of identification. 

Not only does a credit report show credit score, but it usually often contains positive and negative credit transactions covering the past five years of payments. 

How regularly does your credit score change?

There are plenty of things that can affect your credit score, but when they'll impact it can vary wildly, and often depend on when the information has been passed on.

Every credit enquiry is noted on your credit file, and this impacts your credit score. Thanks to Comprehensive Credit Reporting (CCR), it means you both positive and negative transactions can impact your score, but so, too, can the frequency. For instance, if you apply too often for credit cards or apply with multiple lenders for a home loan and aren't successful, you may see a decline. 

How long this information take to pass on is an important question, but the length of time often depends on the credit reporting agency. Some transactions can take a small amount of time, while others take much longer. For that reason, it's important to check your credit history regularly so you can be more aware of what your credit score looks like, and if you need to correct any of the statements made on it. 

What if your credit score has dropped for no reason

The importance of checking your credit score regularly is hard to overstate as the changes may not be as relevant to your life, and there may be the occasional error, but what should you do if it drops for no reason?

Credit reporting agencies calculate your credit score based on the information they receive from lenders, banks, credit card providers and utility companies, among others. This report takes into account both the credit enquiries these companies make, as well as your payment history with them, and may include other factors. But because some reports may come in at different times, delays can appear like drops. 

Suppose you missed paying a bill while on holidays and the supplier couldn’t reach you, or something like it -- in this instance, the provider may report the default to the credit reporting agency, which can cause your credit score to fall when the credit reporting agency eventually sees the information. Because of an obvious delay, the drop can seem random.

Regularly checking your credit score and the transactions that have appeared can provide some understanding as to why a credit score drop might have occurred, and even provide some understanding as to how you can fix the drop, improving your credit score in the process. 

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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