Based on the negative things they may have heard about credit repair businesses, many people have a healthy dose of scepticism about whether they can actually ‘clean up’ their credit history. However, in the wake of the Banking Royal Commission and the accompanying crackdown on lending practices, many may be wondering whether they actually need to ‘clean up’ their credit history in order to ensure that they are able to obtain necessary finance.
This article aims to shed light on this matter by explaining what your credit history is and in what circumstances it may actually be ‘cleaned up’.
What is my credit history?
Your credit history is essentially a record of information which relates to your ability to pay debts or, in other words, your credit worthiness. Known as ‘credit information’, it includes details such as:
- any credit accounts you have, including when it was applied for, when it was opened/closed and the credit limit;
- whether you made credit repayments on time or late or not at all; and
- any court actions that you have or have had against you.
The common form in which your credit information is recorded is in a credit report. You can check out a sample of a credit report here. Your credit report will generally assign you a score based on an assessment of how good or bad your credit history is.
Generally speaking, when you apply for credit to a bank, the bank will seek a copy of your credit report in order to assist with their assessment of whether or not they should provide you with credit. If you have a poor credit score, in that you have defaulted in payments (meaning it was more than 60 days overdue before it was paid) on several occasions, your chances of obtaining credit from the bank will likely be significantly reduced.
Your credit information must be retained for a certain period of time, after which it must be removed from your credit report. For example, if you have defaulted on a payment, it will exist on your credit report for 5 years, even if you paid it subsequently. Your credit report will however be updated to show that you have in fact paid. Take a look at the OAIC’s website for a complete list of how long credit information will remain on your report.
How does credit reporting work?
Credit providers and credit reporting bodies (CRBs) are the two main entities involved with credit reporting. Both are governed by the Privacy Act 1988 (Cth) (Privacy Act).
A credit provider is any business which supplies credit to consumers. They include banks, department stores, loan companies and businesses offering hire purchase agreements such as vehicle dealerships. All credit providers are obligated to, amongst other things, provide credit information which they have about you to CRBs.
CRBs collate and record all the information about consumers which they receive from credit providers, and other sources such as public databases. They use that information to prepare credit reports about those consumers. The main CRBs in Australia are Equifax, Illion, Experian and CreditorWatch.
At this point, it is important to note that credit reporting exists not only for individuals, but also for businesses. What this means is that if you own a business, it will have its own separate credit report.
Individuals are entitled to a free copy of their credit report if they have applied for and been refused credit within the past 90 days. In addition to the above, individuals can get a free copy of their credit report once every 12 months. Businesses are not so entitled.
Can I ‘clean up’ my credit history?
The truth of the matter is that you cannot remove negative credit information simply because you do not want it on your credit history.
The purpose of the credit reporting regime is to enable credit providers to make an accurate assessment about whether or not they should supply you credit. Credit providers need to know, for example, how many payments you have defaulted on in order to ensure that they
a) provide a credit contract which is suitable to you; and
b) comply with their responsible lending obligations.
Having said that, there is scope to correct the information on your credit report. If you believe that any information on your credit report is:
- out of date;
- irrelevant; or
you can request that the credit provider or CRBs correct that information pursuant to sections 20T and 21V of the Privacy Act. The correction usually results in the removal of the information from your credit report entirely. CRBs are not allowed to charge for their costs in dealing with the correction request.
An example of where you may be entitled to correct information on your credit report is where you have had a court action against you which was discontinued or dismissed. The fact that you have had a court action against you will still be on your credit report. However, if you provide the CRBs with a copy of the notice of discontinuance or the consent orders dismissing the court action, accompanied with an explanation, it is likely that they will completely remove the court action from your credit report.
However, it is important to note that this process needs to be undertaken with each of the CRBs. This is because they each hold separate records of your credit information, just because one has corrected your record does not mean that the others will do the same. Taking the time to correct your information with all of the CRBs is imperative, because not every credit provider uses the same one.
In most cases, CRBs will remove the information from your credit report when it is clearly inaccurate, out of date, incomplete, irrelevant or misleading. If they do not, you may make a complaint to their internal dispute resolution service. However, if they still refuse to remove the information, you may consider making a complaint to the Office of the Australian Information Commissioner (OAIC) or the Australian Financial Complaints Authority (AFCA).
OAIC only accepts complaints from individuals. Therefore, businesses must make their complaints to AFCA. By way of note, AFCA only accepts complaints by businesses with less than 100 employees.
Your credit history is essentially a record of information which relates to your ability to pay debts or, in other words, your credit worthiness. Credit providers, such as banks, access your credit history through credit reports provided by CRBs and use them in their assessment of whether or not they should provide you with credit.
If you are denied credit or are otherwise wondering whether you need to ‘clean up’ your credit history, you should first consider obtaining a free copy of your credit report from one of the CRBs. After reviewing your credit report, you can request that the credit provider or CRBs correct information in certain circumstances.
Kott Gunning offers fixed-fee consultations and assistance with corrections of your credit information. If you are interested in learning more, please contact Jonathan O’Connor on (08) 9321 3755.
The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.