One of the things most people in Australia don’t realise is that a credit file is held on every person in the country that has ever applied for a credit card, home loan or personal loan. This report also records every time you apply to an electricity, gas or phone company.
It’s also the place that will record an outstanding default if you don’t pay your bills. This is how banks know you didn’t pay a bill five years ago.
Unpaid defaults last for seven years on your credit file and paid ones last for five years.
Banks access this credit file when you apply for finance from them. Even if you don’t go ahead with the finance it is still lodged on your file!
In 2018 the way banks treat credit card debt has changed. They now lodge to your credit file if your credit card has been paid on time or is overdue. This is shown in the image below. The running history is for 18 months.
You are credit scored through this file and your resulting credit score impacts whether you are approved or declined for the loan.
The more active a credit file is, the lower your credit score is.
Now more than ever it’s important to have a clean credit file. The consequences for not doing so may result in not being able to obtain a loan in the future.
For example, we had a client that applied for her first home loan, four years previous she had been house sharing and the gas bill was in her name. She moved out, thought she had disconnected the gas and paid the account, but hadn’t. We discovered when she applied for her home loan that there was an outstanding bill for $950! She had never been contacted by the company to pay this, instead it was listed on her credit file. She got a decline from the bank and had to pay the money owed.
In some banks you need 12 months clear of the default paid prior to being able to apply for finance. For others it can be two years or more.
You can check your credit file here:
The one that most banks use is Equifax. You do have to pay for this
Dun & Bradstreet
Credit Simple, which is free, but not always completely accurate