Introduction to credit reporting

What is a credit report ?

A credit report is prepared by a credit reporting body at your request, or at the request of a credit provider when you apply for credit. Credit reports may contain details about your current credit accounts – such as the type of credit and the credit limit – and also information about credit applications that you have made. Your credit report will also contain certain other information about you, including whether you are, or have been, bankrupt or had court judgments against you, or whether you have had a credit account where you defaulted on your repayments.

Your credit report also contains your name and other identifying information (like date of birth, address, driver’s licence number and current employer).

Generally, when you apply for credit, the credit provider may use the information in your credit report to help work out whether you can afford to repay the loan and whether you are likely to repay it.

The Privacy Act sets out the rules about what can be in your credit report and how it can be accessed and used.

Your credit score is a number that is indicative of your credit worthiness. Credit scores may be used to help credit providers, like banks or credit unions, make lending decisions about whether or not they will accept your credit application (such as a loan application).

How many credit scores do I have, and why are they different?

You may have many different credit scores – because each credit reporting body or credit provider will calculate their own score using their own formulas and information available to them at that time. They may hold different information and potentially assess this in different ways. 

Your credit score from a credit provider with whom you have a limited credit relationship could be quite different to your credit score from a credit provider with whom you have many credit products.

A lower credit score from a credit reporting body or credit provider compared with a higher credit score from the same entity means that you are regarded by them as a higher credit risk than a person who gets a higher credit score.

It’s also important to know that your credit scores keep changing over time, as each credit provider and each credit reporting body obtains more up to date information about you or changes their formula for calculating your score.

How are credit scores created?

Credit scores from credit reporting bodies are generally based on credit related and demographic information held by them on your credit history – which may include age and location, type of credit applied for, type of credit provider, overdue debts, the number of enquiries made to lenders about credit over time, the dollar amount an application was for, public data including court judgments or court writs, defaults including how many, whether they are paid and how recent they are.

Credit providers might calculate a credit score using their own information (like application information and whether or not you are an existing customer), plus information that they get from external sources like a credit reporting body.

In addition to having their own process for calculating a credit score, each credit provider also applies their own criteria and policies when making lending decisions - which is why some lenders may approve your application while others won’t.

How can I improve my credit scores?

If you manage your credit effectively, this should be reflected in your credit scores (although as noted above each of your credit scores depends on which credit reporting body or credit provider has calculated it). Find out more about how to manage your credit effectively here.

When obtaining a copy of one of your credit scores, it is a good idea to also obtain a copy of your credit reports so you can better understand some of the information which may have been used to calculate that credit score. Click here to find out how to get a free credit report.

Sometimes you don’t have money to pay for everything up-front. With credit, you can take home goods or make use of services, and pay for them later. You can also use credit to buy larger items, such as a house, land, or a car. This means you borrow the money you need to pay for the goods or services, the house, the land, or the car, on the condition that you pay back that money to whoever lent it to you. The credit provider will (in most cases) have rights under the credit contract to charge you interest and fees in return for providing you with the credit.  So, buying something with credit may ultimately cost you more than if you paid for it using cash.  The cost of credit is the additional amount you need to repay, over and above the amount you borrow from a credit provider. It can include interest, fees and other charges.

There are many different types of credit that may be available to you, and the cost to you of borrowing money will depend on the credit provider’s repayment terms, interest rates and fees. It’s a good idea to compare the repayment terms, interest rates and fees, and other features offered by different credit providers.

You should look for credit that’s right for your financial situation and your needs.

Credit can include loans, such as:

  • car loans – to buy a car
  • personal loans – for example, to pay for a holiday
  • home loans – to buy a house
  • consolidation loans – where you may combine a number of your debts into a single loan
  • approved overdrafts– so that you can take out more money than you have in your bank account.

Other types of credit include:

  • credit cards
  • store cards – these are similar to credit cards, but can usually only be used to buy things from particular retailers
  • consumer leases –  where you can hire something (like a computer) for a time and make regular rental payments (in this case, you don’t own the goods during the hire period but you may have an option to buy the goods at the end for an additional amount)
  • debts you owe for services you don’t pay for up front (such as electricity bills).

When deciding whether to borrow money, the most important thing is to make sure you can afford to make all of the repayments over time.  You may need to allow for interest rate rises and anything else that might affect your income and expenses in the future (for example, starting a family or retiring from paid work).

If you do borrow money, it’s important to keep your repayments up to date.  The way you manage your credit over time is a factor which may determine whether or not you can borrow money in the future.  It may also have an impact on the price you have to pay (that is, the cost of credit) for money you may borrow in the future. 

If you’re having trouble keeping your repayments up to date, you should discuss this with your credit provider as soon as possible.

A payment default may be recorded on your credit report if you don’t pay a bill or loan payment of $150 or more for at least 60 days after it is due.

The payment default can only be listed with the credit reporting body if:

  1. the credit provider notified you (at or before the time you entered into the credit agreement) that credit  information would be given to a credit reporting body
  2. you were overdue in making a bill or loan payment
  3. the credit provider issued you a written notice to recover the payment
  4. the credit provider informed you that it intends to list a payment default on your credit report at the time it asked you to make the overdue payment
  5. the credit provider issued a second written notice providing you with one final opportunity to pay, and advising you that, within a period of at least 14 days but no more than three months, it will disclose to a credit reporting body that you are in default
  6. on the date that the credit provider discloses to the credit reporting body that you are in default , the bill or loan payment is at least 60 days overdue.

However, if you are in financial difficulty and have requested hardship assistance from your credit provider, they may not list your default during the period that they are considering your request for hardship assistance. If they have decided you are not entitled to hardship assistance, they have to wait at least 14 days before listing your default. This means that if your account is no longer subject to hardship assistance, or your request for hardship assistance has been rejected (and 14 days has passed), they can list your default.

Once a default is added to your credit report, it will remain there for five years, even after you pay back the money. However, if you have paid the default amount, it must be noted on your credit report that the debt was paid in full.

If you are experiencing financial hardshipyou should contact your credit providers as soon as possible. They can work with you to determine the best way to support you in this difficult time.

You should also be aware that, in certain circumstances, if you do not make a loan payment, a credit provider can issue you notices requiring you to not only make that particular loan payment, but repay the entire balance of the loan as well. If this happens, it may mean the default that is ultimately listed on your credit report is for the entire balance of the loan. 

Borrowing more money when you’re already having financial troubles may only make your situation worse. If you’re finding it hard to make repayments or if you’ve lost your source of income, you should contact your credit provider right away. They can help you restructure your financial obligations before they affect your credit report. For more information on this process, see hardship assistance

You can speak to a financial counsellor for help with your personal situation, or go to ASIC's MoneySmart site for more general information on financial counselling.  Financial counsellors work in community organisations and provide advice about credit and debt issues. Financial counselling is free, independent and confidential.  For more information on financial counselling, or to find a financial counsellor click here.

Community legal services can provide free legal advice about credit reports and your legal options. For more information on community legal services , or to find your local service click here.

Debt is money that you owe and need to pay back.  In other words, debt and credit are essentially the same thing, except that credit may involve an extra agreement that the debt is to be paid at a future time.  A debt is created when you borrow money on the condition that you have to repay it or when you receive a service before you have paid for it on the understanding that you will pay for the service. In some cases, you can incur a series of debts under the same contract, as with a credit card. 

Everyday examples of services you may receive before you pay for them include electricity and gas, or mobile phone and internet services.  If you don’t pay the bills on time, it may cost you more money, including overdue fees, collection costs or (for certain services) disconnection fees.

The legislation governing credit reporting is summarised on the website of the Office of the Australian Privacy Commissioner ( OAIC ). 

In some cases, a credit provider may ask for a person to give a guarantee for credit that another person (that is, the borrower) has applied for.  A person who provides a guarantee is called the guarantor of the loan.

The guarantor will be legally responsible for paying back the loan (with any fees, charges and interest) if the borrower cannot or will not make the repayments. Normally a guarantor will be required to seek independent legal advice when providing a guarantee. The legal advice certificate will then be provided to the credit provider .

Debts that have been guaranteed may appear on both the guarantor and the borrower’s credit reports.

As a guarantor, you may be obliged to repay the amount of credit you have guaranteed if the borrower does not meet their repayment obligations, and can lose any property that you offer as security.  Therefore, you should consider your financial situation and capacity to act as a guarantor before agreeing to do so.