What is a credit report?

Have you heard people talk about your credit report and wondered what it actually is, who creates it and what it’s used for?  Well if you’ve ever wondered keep reading.

Credit Score
Example of credit risk

In Australia, we have comprehensive credit reporting.  Credit reporting works on a reciprocal use agreement.  That is, if a business or organisation wants to check a person’s credit report with a credit report agency then the business needs to provide the credit reporting agency with details of why.  In addition to banks, the common businesses that a person might interact with, and who are likely to carry out a credit check are telecommunication (think Telstra, Optus, Vodaphone etc) companies when you apply for a postpaid phone plan and utility (Energy Australia, AGL etc) companies when you apply to get the electricity or gas connected at a new rental.   When they do this they will be providing the credit reporting agency with details of your full name, date of birth, address and your driver’s licence number – which is often the most common form of identification supplied.    The first time these details are supplied to a credit report agency, a credit file will be established.  Once established all subsequent enquiries with the matching information; name, date of birth, and drivers licence number will be updated on the existing record.

Whilst Telecommunication and utility companies conduct credit checks as part of the process of opening an account but they don’t report your repayment history on the account unless you default.  So if you are a couple of days late on paying the electricity bill it’s not going to have any impact on your credit report.

The other main users of credit reports are businesses that lend money.  For example, businesses that provide home loans, personal loans, car loans, credit cards, store cards (you know the interest-free deals), Equipment hire and buy now pay later serivces like Zippay or Afterpay.   These providers (with the exception of BNPL) have a requirement now to provide repayment history.   Your repayment history on these types of facilities is maintained for a rolling 2 year period.  If you make your repayment on time you will receive a 0; if you are up to 29 days late a 1; 30 to 59 days late a 2; 60 to 89 days late a 3 and more than 90 days late it will be listed as a default.

Repayment history

The comprehensive credit reports record the date you applied to open an account, the original limit, the current balance and your repayment history.  If you close an account, the date it is closed will also be recorded.  The repayment history will still remain visible on your credit file for 2 years.

Defaults will remain on your credit report for 5 years.

Credit reports also detail if you are a current or previous director of a company, any business names that may be associated with you, a history of where you have lived and your employers.  If you have been known by a previous name credit reports will be cross-referenced.  This is very common for people who change their name due to marriage.

So what are these reports used for?

These reports are used by lenders to assist them to determine the risk profile of applicants for credit.  When you apply for a home loan, the lender will check with the credit report agency as part of its due diligence process. The higher your credit score the lower the risk you pose of defaulting on your loan.   In determining your credit score the credit reporting agency takes into account how much and how often you have applied for credit, how long your record has been established, your repayment history on any existing credit facilities, and if you have any adverse information just as defaults and court judgements lodged on your record.

How do I know what’s on my credit file?

You are entitled to receive a free copy of your credit report every year. You can obtain a free copy of your credit file from My Credit File

One last thing.  In order for any business to access your credit report they must first obtain written permission from you, so be aware when you are asked to ‘sign here’ that you may just be providing permission for the business to conduct a credit check on you.

Margaret Godfrey, is a Mortgage Broker in Newcastle passionate about educating her clients so that they get the best financial outcomes.    If you are looking for a home loan give Margaret a call on 0451 471 061 or email her on mgodfrey@smartline.com.au