If you’re like most Australians, you’ve struggled more financially than usual over the past year. And you may be looking to streamline your money management and optimize your economic arrangements.
But you’ve probably also wondered: how will it affect my credit rating if I change my products, transfer my money, or if things got / got a little more serious, ask my creditors for some financial difficulties?
Yahoo finance got the exclusive answers from Equifax, one of the largest credit bureaus in the country.
Equifax, along with Experian and Illion, are the gatekeepers of what you can truly think of as your money selfie. And this one is “ warts and all, ” and maybe in need of some financial photoshopping.
Let’s start by understanding what this selfie is does not include: which is any information about your insurance or rental payment history (but a real estate agent will, of course, have this and it could affect your ability to secure another lease).
But here’s the potential impact of your various other money movements, including those that seem wise.
What would you like to know
First of all, you should know that since 2019 – when the Big 4 were well armed by the government to provide all your information to enable it – we have a fully fledged American type credit rating.
It’s your credit record which contains all the data to produce this score.
Now, Equifax’s credit score is a number between 0 and 1200. But be aware that all scores are a harsh judge: on this scale, a number as low as 755 is still considered “good.”
Your credit report lists all of your credit inquiries, defaults, and public record information, as well as more detailed information such as:
account information such as the date an account was opened and closed;
your credit limits;
the type of credit account; and
24 month repayment history.
The latter, your repayment history information, can only be provided and shared with approved credit providers. This therefore excludes telecommunications and utility companies.
But there is more to it.
The worst money moves you can make
Money error 1: Default on an invoice
You are considered to have defaulted on an invoice if you are 60 days or more late, and this will be shown on your credit report if it is over $ 150. These defaults remain on your credit report for five full years. Your score will be hit hardest if you’re late by multiple repayments for 60 days or more, or late by one for more than 90 days.
Money mistake 2: missing a credit repayment
If you miss a credit repayment by 14 days or more, this will be recorded in your repayment history and will not decrease for two years.
For example, if you have a mobile phone bill over $ 150 and it was due more than 60 days ago, your phone company may show it on your credit report as a default payment. Note, however, that the credit provider must first take a number of steps. In particular, he must send two separate written notices to your last known address.
Equifax says if this is one time, it will have minimal impact on your credit score, but if repayments are missed over several months, it will definitely have a negative impact. More recent payment failures will have the biggest impact on your credit score.
If you have a more recent positive repayment history but an older default, this can help offset the negative impact of the default.
Money mistake 3: asking for unsecured debt
In general, secured financing (when you offer an asset as collateral) is more positive than unsecured personal loans or credit cards. Short term unsecured loans can have a negative impact on the credit rating.
Thus, mortgages, credit cards, personal loans and store financing carry different levels of risk.
Of course, mortgages are secured financings – on a property – and can in fact positive impact on a credit rating.
The seemingly innocent movements that hurt you
Beyond type amount of credit you apply for, it is critical to know how much that credit – say the loan amount or the credit limit – will influence.
But then there is a problem of quality and frequency.
Here are some of the most damaging and surprising examples.
Surprise stopper 1: The first is to make four or more requests in a year for a personal loan.
And note that while buy-now-pay-later facilities are currently exempt from the National Credit Act, Equifax also considers these requests to be a personal loan. So these too will decrease your score.
Surprise stopper 2: The very type of lender you seek credit from makes a difference: the more common it is, the more it will be viewed favorably.
Equifax’s tagging system assumes different levels of risk in approaching a bank, store finance provider, hire-purchase, and utility company for credit. Additionally, research shows that there is a different risk with lenders in the same industries.
One of the relevant things may be that a non-traditional or alternative lender might have a different level of risk than an older type bank or credit union.
That’s not to say that you shouldn’t go for an alternative lender, however. You will likely get much cheaper rates from such a lender, so there is a balance to be struck!
Surprise lead score 3: The last unexpected driver down requests two or closer credit cards to each other. Such apps will stay on your credit report for five years, although their influence will also wane over time.
But like the above, it’s always worth transferring a balance to a 0% transaction so you can pay it off faster with no interest. You can get up to 30 months at 0% right now, so even a second application after that – if you didn’t manage to remove it entirely within the first interest-free period – shouldn’t hurt too much.
Free services like canstar.com.au, creditsavvy.com.au and finder.com.au provide individuals with the top four factors contributing to their score and show the impact, positive or negative, of this factor on their credit score. Equifax. .
You can also get your credit report for free once a year from Equifax, Experian, and Illion.
What else do I need to know?
Unfortunately, beyond these details, it is not a simple answer.
A spokesperson for Equifax said: âGiven the nature of how scoring algorithms work, we cannot provide a specific numerical impact on what a certain money transfer will have on the credit score of an individual.
“A credit score is based on the information contained in an individual’s credit report at any given time and the combination of all the factors will be slightly different each time.”
What if you have financial problems? What if you asked creditors or suppliers for special consideration during COVID-19 lockdown times, or officially requested financial hardship concessions?
Equifax says: “[We are] actively engaged with customers, industry and government to clearly measure and articulate the impact on credit reports and consumer scores. “
In April 2020, members of the Australian Banking Association agreed that customers who postponed their loans as part of a COVID-19 assistance offer would not have missed the repayments reflected on their credit report.
And, as always, while it’s completely counterintuitive, if you’re having trouble making a credit repayment, it’s best to contact your credit provider first.
Also note that recently enacted legislation means that financial hardship information will soon be removed from your credit report after 12 months – that’s 24 months for regular repayment history. Thus, a short-term financial drama will not turn into a long-term financial trauma.
Nicole Pedersen-McKinnon is a Yahoo Finance columnist and longtime nationwide âmoneyâ commentator. Follow Nicole on Facebook, Twitter and Instagram.
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