Credit Rating... What’s That?
These days you will here the phrase ‘credit rating’ being thrown around more than a cricket ball at the MCG. You’ll hear it on the radio and see it on TV, but to a lot of people those two words don’t mean a thing. What is a credit rating and how does it apply to you?
In its most simple definition, a credit rating is an ongoing evaluation file of a person’s credit history, which illustrates the likelihood of that person’s ability to make repayments on future credit debts.
Credit reporting agencies compile this information as soon as you start using credit (in the form of credit cards or other forms of loans) and supply this information to loan providers. This information may include a list of current and past credit accounts and their balances, your payment history, employment and personal information, and a history of past credit problems.
To put this into a real life situation, when you apply for a personal loan at a bank they will contact a credit-reporting bureau and check your credit file. This way they can safeguard their investment in you and make sure that they are going to get their money back through your repayments.
So if you have a credit file (whether it be good or bad) a loan provider will use this as their basis as to whether or not to accept your loan application. If you have a bad credit file it can affect you in a number of ways. But how is it that you end up with a bad credit file in the first place?
LATE PAYMENTS
Well there are a number of ways that people can give themselves black marks on their credit file. One of the most obvious is by making late repayments on a debt, or skipping them altogether. So if you have incurred quite a few overdue statements over the years, chances are these payment histories are taking up room in your credit file.
Basically, a credit provider can make a report as soon as a payment becomes overdue by 60 days and as long as they have advised you in writing of the overdue fee. So even after you make the repayments, once the report is on your file it stays there for 5 years for overdue payments, dishonoured cheques, and court judgements.
There is no guide to demonstrate how loan providers should interpret these records. Therefore it is crucial that you keep on top of your payments and keep your file squeaky clean.
EXCEEDING YOUR CREDIT LIMITS
Like late payments, both reaching and exceeding your credit limits can sometimes affect your credit file. You may have heard this being referred to as ‘maxing-out’ your credit.
Reporting this kind of credit activity is at the discretion of your credit card provider, so it’s a good idea to keep an eye on your limit, perhaps even enquire with your credit provider about their policies regarding this topic.
DECLARING BANKRUPTCY
While it is best to steer clear of bankruptcy, in some cases it can be the only option. A persons financial situation can get so out of control that there is just no way that they can get out of debt, with the last resort - bankruptcy, being the only solution available.
This is an extreme solution with devastating effects; one being that it will remain on a credit file for up to seven years.
TAX LIENS
Another cause of negative credit reports is tax liens as a result of unpaid taxes. Like credit ratings, this is something that people bypass due to being misinformed. A tax lien is the government’s ability to legally claim the property of a tax-payer (or non tax-payer as the case may be) to secure the payment of a debt or the satisfaction of an obligation.
As it is a last-resort form of debt collection it will be recorded on your credit file for a number of years, having an adverse affect on your future financial plans.
IDENTITY THEFT
Identity theft is legally defined as the deliberate assumption of another person's identity. Many people do not realise they have fallen prey to this crime until they apply for a large loan such as a mortgage or car loan.
With information like Driver's License numbers, account and other personal information, these heartless characters apply for mortgages and credit cards, buy cars, or withdraw savings. Some may even go as far as committing crimes under a false name.
It is for this very reason that you should keep a tab on your credit file. If you think that you have become a victim of identity theft, it is important to contact your credit provider immediately so the situation can be remedied and you are not left with a bad credit report.
ERRORS IN YOUR CREDIT REPORT
Unfortunately for all the credit consumers out there, it is possible for credit reports to have errors. This is most often caused by omissions from credit providers. Policies regarding credit reporting only state that the information must be accurate, which means that they are not required to make updates on credit information they provide.
If a credit providers reports late or missed payments they are in no way required to update it when you make the payment. So again, it pays to keep an eye on your credit report so you don’t suffer in the long run. The way we are constantly watched by credit reporting agencies, it may feel as if you’re a contestant on some crazy financial Big Brother show.
Sadly it is unavoidable, but with a responsible attitude towards credit consumption and regular checks on your credit file, you should have nothing to worry about!
For info on how to get a copy of your credit file, head to the Ask Cash Doctors page http://www.cashdoctors.com.au/ask-cash-doctors.php. Here you will find questions from people just like you, and the answers that go along with them, including "How do I go about getting a copy of my credit file and where do I get it from?"
You'll also find a form, so that if you need to, you too can ask Cash Doctors a question of your own.
Reader Comments
Posted By: Gaye - 01 November 2008 08:44:53
thanks guys for the info very informative and also the other comments too nice to know that there others out there who have the same or similar problems with cash handling a good book to read is rich dad poor dad and the richest man in babylon both very easy ro read and helpfull
Posted By: James - 26 August 2008 12:27:50
Backruptcy is awfull. You have a mark aginst your name for years. It is great when you get your car or by you house or a personel lone. But you do have to pay it back. Borrowing is an investment for you not for having fun. I was so stupid and did not know the consiquences of to much debt. Now I have paid a price for 6 years so far. I can not get a thing. I still have 3 years to go. Debt is good in moderation. Saving money is even better than to borrow. But if you have to borrow only borrow what you can afford to pay back. When you by a car on credit for 20000 you actualy pay 27000. A car cost for rego for fuel for maintinance so over 5 years that car would cost you 40000. A house is the same.
Posted By: Nikki B - 25 August 2008 15:10:26
How can you make your credit rating more attractive?
Posted By: scott mills - 01 August 2008 20:03:59
how do u find out if yr credit history is bad/good
Posted By: fevziye celiker - 10 June 2008 13:58:24
would like a copy of my credit rating
Posted By: Charlee - 19 May 2008 16:47:40
IF ANYONE WANTS TO GET THEIR CREDIT FILE GO TO VEDA ADVANTAGE. YOU CAN REQUEST A FREE COPY WHICH WILL TAKE A FEW DAYS UNLESS U NEED IT ASAP U CAN PAY AN AMOUNT FOR IT. MY CREDIT FILE IS SOO OFF THE ROOF. BUT I AM REGISTERED WITH THEM SO EVERYTIME A CREDIT PROVIDER GOES INTO MY FILE I GET AN EMAIL TO LET ME KNOW WHO HAS CHECKED MY CREDIT HISTORY. IT IS REALLY GOOD. HOPE YOU GUYS FIND WHAT YOU NEED....
Posted By: Anonymous - 14 May 2008 15:43:18
We have bad credit and would love to know where we can obtain a copy of our credit file without it costing anything or even online. Does anyone know?
Posted By: wayne green - 14 May 2008 11:05:13
how do you know if you have a bad credit and how can you fit it could any one help me on this
Posted By: Roslyn Sugden - 12 May 2008 11:42:32
I was forced to go bankrupt. I sold my half of the house and paid all my debts, bankruptcy said once I paid the debts it would be null and void. I got amy credit file and it is on my credit file till 2010. This is so unfair
Posted By: kerryanne brand - 11 May 2008 18:45:04
i would love to find out if i have a bad cried or not
Posted By: nigel walker - 02 May 2008 09:54:39
good info thanks guys,i know ive been late with repayments in the past,i would like to know my credit rating and how to get a positive credit rating in the near fiture
Posted By: Blondie Bob - 15 April 2008 13:00:01
I have read the articles, and just wondering if u really can help me, being on a Sole benifit i dont meet ur criteria,so my application was only partly completed... and would really like to kno my credit rating Please if u can help me...
Posted By: Chanuska Chandran - 08 April 2008 14:39:03
Yes, would like to know my credit rating.
Is it free to find out?
Posted By: David james McManus - 08 April 2008 12:12:20
Like to know what my credit file looks like.I just knocked back $8000 loan for a car im scared to take out a big loan again.How can i look at my credit rating.
Posted By: dale - 07 April 2008 11:28:15
hi mould like to find out how fare up the river my credit rating is
Posted By: melinda shaw - 01 April 2008 15:19:12
would love to know my credit rating
Posted By: Amanda Jayne Bickerstaff - 17 March 2008 01:35:58
Hi, I would love to find out more about my credit rating, as I know it is not the best. I am a little unsure what this site is about, however I would love to know how bad my credit rating is, so if you cn help pls do,, regards Amanda
Posted By: samantha gordon - 10 March 2008 17:34:34
thank you so much
Posted By: Denise p Duggan - 08 March 2008 14:48:33
hi have read all the reviews and i hope you can help me out
Posted By: steve - 06 March 2008 17:44:31
can cash dr help my rating"???
Posted By: Frezna Perez - 11 February 2008 12:04:22
This is fantastic, I have definitely learned something from this, actually not something, a lot actually! i usually just delete your mails when they are sent to my email, but this one actually caught my eye!!! The fact that every bit is so true! No matter where I turn for credit, theres no way out! I now also have to save to get anything that I need. Its not easy but its the way it has to be because of my poor efforts to repay my loan off. I am so close to declaring Bankruptcy! But above all, thanks to CashDoctors I have shared this information with a couple of work colleagues who had no idea what a credit rating is!
Posted By: Anonymous - 10 February 2008 18:46:15
Okay, great advice guys but what about people like myself, who are already in the trap of having bankruptcy. What can we do to repair our credit ratings. If I pay off my debts it will show on my record but it wont give me a good credit rating. Is there a way to climb back into the green and if so how long should someone expect to be waiting before they will be considered for a loan again. There are absolutely no incentives out there to even try to pay back the amounts owed now, as it does nothing except make me feel better about righting my wrongs, but my point still stands, where is the incentive to try to fix ones credit file once it is impaired with a black mark of bankruptcy.....
Posted By: julie wilson - 10 February 2008 13:08:41
my credit rating is not good
Posted By: Anthea Henkeman - 21 January 2008 16:15:47
I absolutely agree with the above summary,the worst thing is even if you wanted to get out of it you could'nt,seems like no one wants to help you.
In my case I wish I had enough to sort it all out and get a chance to start again."would do things SOOOO different".May be to late.....
Posted By: Dale Mulligan - 17 January 2008 07:35:11
Dear CashDoctors,
Yes, your summary of "credit file" information is so very correct. I know only too well the effects an adverse credit rating can have on your life. I was forced to declare bankruptcy back in 2000 after a busines venture (my first) went devastatingly wrong due to a number of factors beyond my control and I have been in credit limbo land ever since. Interestingly enough though, I have now come to terms with a new financial strategy which,
simply put, means that I don't obtain anything I can't afford to pay cash for and consequently I now own outright everything I possess including an SVO Ford and a Harley Davidson FatBoy. However this is of little consequence when it comes to purchasing a home or cash emergencies which can't wait for a savings period. Enter CashDoctors who have helped fill that financial void in my latest time of need - car rego requiring unplanned repairs (tyres) right on Christmas. I just wish I owned the business!
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