How to fix credit problems

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Credit problems – who has them? If you’re reading this article, chances are you have, or you know someone who has.

First off, know that you are not alone. A lot of people have issues with their credit from time to time. Australians are in more debt than ever before and our income-to-debt ratio is through the roof. If something happens to shake someone’s financial foundations, like a job loss or a health issue or a family emergency, most people will end up being in the red and facing credit problems.

So, you’ve got them, now what? It’s important to know why it is bad to have credit problems. Rarely do we act on getting something fixed up until we really understand how it would benefit us. Know this: credit problems will 100 per cent stop you in your tracks when you’re wanting to move forward financially and otherwise.

Whether you’re wanting to get a mobile account, a personal loan for a holiday you’ve been dreaming of taking, a car loan because your car is about to implode or a home loan because you’ve found your dream home, your credit problems will stop you.

Here’s what will happen. You’ll decide that you want to do something like getting a credit card, so you can improve your credit rating. You’ll apply online, go into a bank or call the customer service line of the bank you most want to use. They’ll knock you back without question and without any reason why, or they’ll knock you back and let you know it’s because of an issue on your credit file.

At this point it may be tempting to go to the next bank or financial institution and ask them if you can get finance. We strongly urge you to not do this. As soon as you get knocked back – no matter whether you think you’ve got credit problems or not – stop applying for finance then and there.

One credit problem that is growing in Australia is people appearing to be ‘shopping around’ for finance by going from company to company. While this may seem logical because you want what you want, it’s the opposite of logical if you want to get finance in the foreseeable future.

Each time you apply for finance, a credit enquiry will appear on your credit file indicating that you asked a particular credit organisation for money. Sometimes it says how much you asked for; sometimes it says $0. No matter what, it changes your credit file and reduces your score every time you go for finance, whether you get it or not.

More than five enquiries in a year speaks volumes to any other credit providers who access your credit file – and the messages are not necessarily positive.

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Three things to do when you discover you have credit problems

One of the first ways to fix your credit problems is to stop applying for any type of finance. Wait for six to 12 months and then proceed. The longer the period of time away from your most recent enquiry, the better and the more favourable your score will be. Also, the more attractive you’ll be to future lenders.

OK, so you’ve heeded our warning and stopped applying for finance. Good! The next step is to access all available copies of your credit file. We’re talking Equifax, Dun & Bradstreet and possibly even Experian.

Experian is a newer company in the credit reporting industry in Australia, so it does not have as much data as Equifax and Dun & Bradstreet. However, to understand your comprehensive credit record, Experian is absolutely a piece of the puzzle. These credit files can be accessed for free (this service typically takes up to 10 business days, although sometimes it takes much longer) or via paid services. Also, typically credit repair companies can access these for you for a fee and will give you a credit towards their services if you decide to move forward to repair any defects on your reports.

Once you have your credit reports, it’s time to assess them. A credit repair company can do this for you and will usually do a free assessment of your situation or you can look at it yourself. Other options are to talk to the relevant credit reporting company about it, or speak to a finance professional that you are not trying to get finance from.

What you will notice when you get your credit files is that they are rarely the same. For example, your Equifax file may have the same and different information on it to your Dun & Bradstreet credit file, and your credit scores for each file will be different.

We assessed a client’s files this week and she had seven recent enquiries (made between 3 December 2017 and 8 February 2018) on her Equifax credit file and a score of 342, and three of the same enquiries on her Dun & Bradstreet credit file and a score of 626.

Why the difference? Some companies only check one credit file and some companies check all credit files when you apply for credit, so it’s important to know the whole picture before you apply for more credit. Both credit scores will need to be over 650 to be sure of being approved, as you never know whether they will check both files and find that one has a low credit score.

Credit problems typically fall into several categories:

  • Credit enquiries
  • Default listings (both commercial and consumer)
  • Court judgments
  • Bankruptcies
  • Part 9 debt agreements
  • Writs
  • Summons

When checking the credit file, keep a lookout for default listings, judgments and credit enquiries. Ask yourself the following questions:

  1. Did I enquire for finance or credit or any type of account with this company (for credit enquiries)?
  2. Did I know and agree to the company mentioned accessing my credit report (for credit enquiries)?
  3. Did I have an account with this company (for defaults and judgments)?
  4. What is my recollection of the issues that I was having making payments towards this account? What was happening in my life in the six months leading up to the date listed as the ‘default/judgment date’?

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Repairing your credit history

Once you have the answers to these questions you can start working to repair your credit history and clear your name.

One thing to note is that the majority of what is on your credit files will come off it automatically in five to seven years from the date of the listing. So one way to fix your credit file is to wait it out and make sure nothing else gets on there. During this time, it is very important to not apply for any types of accounts as this will lead to further complications in the future.

The downside of this approach is that you may be locked out of the housing market, and you can’t replace your car or get a new mobile until your files are clear.

There are many things that you can do yourself and there are many things that credit repair companies can do on your behalf. People will often choose credit repair companies because they have knowledge of the legislation and rules, and they dedicate their time to fixing these types of issues every day and push the companies to resolve things as quickly as possible.

Here are four things you can do yourself to repair your credit history:

1. Contact the company

You can contact the company in question asking for your default listing or judgment to be removed from your credit file. You can also ask for an investigation into its accuracy. The company may or may not agree to the removal of the default listing, but they do have to agree to an investigation. The seriousness of the investigation is another question to consider, as many companies will do a surface-level investigation to pacify the customer.

2. Contact the ombudsman

Next you can contact the relevant industry ombudsman and ask them to do an investigation on your behalf. You will need to be very engaged in this process as the ombudsman will have questions for you that need to be answered within a period of time. Also, you will have to be able to put a solid case forward as to why your credit history is wrong and why it is the fault of the company in question.

Everyone that provides Australian consumers with credit or finance must be a part of an industry ombudsman. As a side note, organisations that provide commercial finance do not have to be a member of an ombudsman. Also, companies that list judgments do not necessarily need to be a member of an ombudsman, so this step does not work for every type of default or judgment listing on your credit file.

The various ombudsmen have delays up to 20 weeks in looking at cases. You typically only get one chance to appeal to the ombudsman to have a consumer default listing resolved. So it’s very important that your first attempt is carried through to completion and you don’t miss a beat in terms of your arguments and answering questions.

3. Contact the Privacy Commissioner

If the organisation is not a member of an ombudsman, then you can take your complaint to the Privacy Commissioner. The Privacy Commissioner only looks at complaints about consumer, not commercial, credit files. Like the ombudsman, they will help you make a complaint against the company that listed you and will hold the company in question accountable for their actions. The Privacy Commissioner tends to take 12-16 weeks to deal with cases.

4. Contact the credit reporting company

You can also contact the credit reporting company and ask them to do an investigation into the validity of the default listing. Typically, they respond within 30-45 days, and give you the outcome of their investigation into the validity of the listing.

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Final thoughts about fixing credit problems

That should give you enough to get started with. Remember, getting your credit problems fixed ASAP will set you up for a life of financial freedom, it will ensure you’re taken care of and do not get knocked back when you apply for credit or a loan down the track.

So, here’s the quick credit problem check list:

  1. If you get your credit application rejected, immediately stop applying for any and every type of credit contract.
  2. Get to the bottom of your credit history by getting your Equifax, Experian and Dun & Bradstreet free credit files.
  3. Get these properly assessed so you know what’s holding you back.
  4. Get all defaults, judgments, court actions and credit enquiries investigated to ensure they are valid before you apply for finance again. If you want this done by a professional who knows all the rules, contact a credit repair company to run the cases for you.
  5. Otherwise, wait until the issues naturally drop off your credit files after five to seven years.

Good luck and keep your credit files clear for your future self!

Dr Merrilyn Mansfield is the lead adjudicator and researcher for Princeville Credit Advocates. She is fascinated with the consumer laws that relate to credit reporting and in advocating for a consumer’s right to a correct credit report. She is in her final year of law. For more information email merri.m@princeville.com.au or call 1300 93 63 63.

Carmel Mansfield is a credit file specialist at Princeville Credit Advocates, currently working with clients to improve their credit score. She has also worked in complex case management at Princeville since 2010. She holds an economics degree from the University of Sydney and is a passionate consumer advocate.

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