Credit History

One of the first things the bank does when assessing a new home loan application is to perform a credit check. This involves checking the public records with the major reporting credit agency in Australia, Veda Advantage.

Whenever anybody lodges an application for credit of any type, whether it is for a home loan, credit card, a personal loan or for a mobile phone contract, the enquiry is listed with the credit agency.

The credit agency keeps records on every enquiry made via every lender in Australia and stores the following information.

The date the application was made.

The type of credit applied for.

The amount of credit applied for.

Any defaults or court judgements in respect of earlier credit facilities.

All bankruptcy proceedings.

Commercial applications in respect of companies are also noted in the same way.

There is no indication on the report as to whether the facility is currently not or whether the facility applied for was approved or accepted. What this means is that the bank will rely on the information provided by you in your application form to determine what your current liabilities are.

In some circumstances the bank can ask for proof that a loan has been paid out but this is rare. Basically the bank is relying upon your honesty and of course it would be a foolish borrower who lied about their liabilities simply to have a loan approved.

Many applications stopped dead in their tracks at this earliest point because of a bad credit history being exposed. Many borrowers are unaware of a problem until they are advised by a bank that the application has been declined because of a bad credit report. But there are many circumstances where a default can occur without a borrower ever knowing about it before an application is lodged.

He was a typical example.

A borrower moves into a share house and assumes responsibility for a telephone account by applying for it in his or her own name.

The borrower moves out of the house to new premises and tells the new tenant they can take over the telephone account. The formal transfer does not take place and subsequent accounts remain unpaid.

When the telephony provider tries to contact the account holder discover that he or she is no longer there and there is no trace of them anywhere on the system.

The telephone company lists the account as being in default.

In the event of this happening, there is little borrower can do to allay the suspicions of the lender other than to pay the account in full and throw themselves on the mercy of the lender by explaining the circumstances. Lenders are reluctant to accept any excuse however as it is a hallmark of a good borrower to make sure all accounts are paid and managed in a responsible manner. In other words, a credit history can paint a good or bad picture of a borrower's character and this is a vital part of a loan assessment process.

What can be done about a bad credit history?

In the past, the only way for a credit history to be repaired was to wait for five years until the default dropped off the credit file. This might appear to be a harsh penalty and indeed some lenders take a more relaxed view especially where the amounts of money involved are quite small. For instance, in the above example some lenders might be willing to ignore the default if the amount of money is lower than $500 and it has been paid in full. It is more likely again if the default is the only one on the record and has over two years old.

There are plenty of companies who specialise in repairing credit histories such as the above, and sometimes the expense involved can be prohibitive. Where a borrower thinks there has been a mistake or where there has been a fraud perpetrated legal advice should be sought as soon as possible to redress the situation.

What can you do to protect your credit history?

Veda Advantage will advise you of every change to your credit file by e-mail or text message if you subscribe to their credit alert service. From modest fee of around $20 a year you will be advised every time an addition is made to your credit file. This means you will be aware of any proceedings that may have been brought against it or where a fraud is being attempted.

The fee is well worth it as this is one of the only ways you can have ongoing protection against an adverse report being listed.

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