Over the past few years the government have been quietly going about their business changing legislation in this area giving organisation’s such as banks more access to your personal credit information via your credit file.
The process is known as comprehensive credit reporting and it will impact your credit file.
Now this important because as comprehensive credit reporting gets implemented lenders have much more information about you when assessing your credit worthiness, this will show up in your credit file. Just to be clear, these things are in motion as we speak.
Prior to the changes credit files reported any defaults or bankruptcies – I think most of us get that.
The other useful bit of information was the number of inquiries you have made in recent history. Inquiries pop up on your credit file every time you go for a loan or credit card. Sometimes utilities providers such as electricity and telecommunications companies will also inquire to make sure your good to make payments.
Lenders look at the number of recent inquiries you have listed in your credit file and if it’s too many for their liking they can decline you. To a lender someone that looks like they constantly need to borrow has a higher risk of not repaying.
Now on top of the existing credit reporting they have access to more information. It provides lenders with all of your current debts, if they have been paid on time and if late by how long.
This means that your credit score can be reduced for paying a day late on something like a credit card or car loan. Even if you only do this once it will stay on your credit file for 24 months.
The other thing to note is that it’s widely believed within the mortgage broking industry that lenders will begin offer interest rates based on your credit score.
The logic here is that if you show less risk to them as an applicant then you should have a lower rate because you will repay the loan and the bank will make their profit.
The reason this is important is there are so many people that just have their heads in the sand when it comes to this stuff. The problem is that when you need money and the bank says no then you are stuck with whatever situation you preferable weren’t it. With comprehensive credit reporting this will happen much more.
If you are one of those people you can start by getting online and accessing your credit file for free. There is plenty of information out there to tell you if your credit score is good or bad.
You can improve your credit score in a few different ways.
- You can Direct debit all repayments and make sure the money is in the account to pay them.
- You can close off credit cards with unreasonable limits you don’t need. In the past credit card providers use to throw money at people by automatically increasing limits. Large limits go against you when lender is assessing how much you can borrow because they make the assumption that you have borrowed the whole limit and are making minimum repayments on it.
- Challenge defaults. More often than not companies that have listed your default have not followed the correct and legal procedure. Credit repair companies help people to fix up credit files and remove defaults.
As a mortgage broker I have had several clients in the past where an electricity or gas or phone companies have incorrectly defaulted clients and put them through credit repair and their files cleaned up.