Your credit report: why it’s time to pay attention

Your credit report may not be the most glamorous part of your personal finances, but it is one of the building blocks of a strong financial position. And the earlier you start paying attention, the better.

Understanding your credit report

If you’re pressed for time, the first thing to look for in your credit report is your credit score. This gives you a quick look at the state of your credit, and falls somewhere on a scale from Below Average to Excellent. It might also be given as a number between zero and 1,000 or zero and 1,200, depending on which reporting agency you’re using.

When you get down to the nitty gritty, your credit report also includes information like:

• Credit applications. When you apply for a new credit source, like a credit card or loan, it will be recorded as an “enquiry” on your credit report for five years.
• Open credit sources. Your credit report will include a list of which credit sources you have and when you opened them. It also includes the credit limit on each one, which lenders will look at when you make an application for a new loan or credit card.
• A record of your repayment history. Your history of making repayments is recorded for up to two years. This is really important, because your track record of repaying a loan is a signal for how well you will handle that responsibility in the future.
• Credit defaults. If you miss a repayment of at least $150 by 60 days or more, it can be recorded on your credit report as a default. Keep in mind, defaults can also include phone and utility bills - so stay on top of your due dates!

As you might expect, your credit report also includes personal information like your date of birth, employment details, and even your driver’s licence details. This information is basically there for identification.

There’s some information, like your annual salary, insurance claims or religious and political views that don’t factor into your credit report at all. That’s because your credit report is mainly designed as a way to show how you handle the responsibility of borrowing money, so they’re not really significant.

What’s the big deal?

Your credit report shows potential lenders how well you handle the responsibility of borrowing money and repaying it on time. So when your credit report is in great shape, you’re more likely to get approval on your applications, and it can even help you get a better deal on financial products.

When it comes to applying for a home loan, personal loan or credit card, a bad credit report can seriously damage your chances. You might not have ever thought about it, but your credit score can even make a difference with things like changing to a different phone plan. If you want to buy a home someday, or even have your sights set on a brand new car or whirlwind international holiday, then your credit report is really important.

Looking after your credit record

With so much riding on your credit report, it’s well worth your time to start keeping an eye on it. There are a few steps you can take to keep your credit in tip top shape.

Get a free copy of your credit report.

You can get one free copy of your credit report each year from each of the official Australian credit reporting bodies. Make sure everything is correct, and if there are mistakes, be sure to contact your financial provider straight away to have them resolved. This shouldn’t cost you anything - be wary of companies who offer to ‘fix your credit’ for a hefty fee.

Set reminders for your repayment dates.

Key to looking after your credit is keeping on top of repayments so you’ve got a healthy history of managing your borrowing responsibly. Set reminders, set up direct debits - whatever you need to do to make sure you never miss a due date. Your repayment history is recorded for up to 24 months, so this should be a long term habit, not something you only pay attention to when you want to make a new loan application.

Lower your current credit limits.

It’s not just about how you use credit, but also how much of it you have available to you. Your total credit limit is the amount of debt you could potentially have at any given time, and so lenders will look at that when assessing you as a borrower. If you’ve got credit cards you aren’t using, it may be worth asking yourself if it’s time to close those accounts.

Don’t bite off more than you can chew.

Part of having healthy finances and a strong budget is not spending more than you can afford, and that’s an important rule for your credit too. You should never borrow more than you can comfortably repay, whether it’s charging your credit card or taking out a personal loan. That way, you’re in less danger of missing repayments.

Educate yourself about credit.

If you’re just getting used to thinking seriously about your credit, then don’t stop now! There’s plenty more to know about your credit health and the more you learn, the more confident you’ll be. Resources like creditsmart are a great way to find out anything you need to know. Or for more information on how we report to credit agencies, your credit score and credit report visit our Comprehensive Credit Reporting page.