How comprehensive credit reporting allows the banks to put you over a barrel
If you’re into property, you probably realise that we’re in an environment of historic low interest rates.
Maybe you’re reading this saying “Gee I wish I could get those low rates!”
Because the reality is that even though interest rates are low, many investors can’t get them.
Why is that?
Well that’s because the banks and other lenders are using comprehensive credit reporting or CCR as an excuse to raise interest rates on a case by case basis and chances are you won’t know you’ve been impacted until you go for your next loan.
What is Comprehensive Credit Reporting?
It used to be the case that your credit file only recorded when you were really naughty, like not paying your creditors or if you shopped around a lot for credit.
Why did this happen?
Well the idea was it would give lenders a more realistic picture of what a potential borrower looked like.
What it means for you is now whether you like it or not many bills you pay on a regular basis are being recorded on your credit file.
So, your home loan, credit card, car loans, store cards and the like are being tracked in relation to your repayment history.
And while they aren’t being recorded just yet, pretty soon power bills and phone bills will be tracked as well.
Every time you pay one of these late by 14 days or more it’s recorded
This means that if you’re 14 to 30 days late you will get a ‘1’, 5 months late you get a ‘5’ anything over 6 months and you get an ‘X’.
Just a ‘1’ on your file could be enough for a bank offering the best rates to ratchet up their interest rates or reject you and force you to go to a second-tier lender.
And trust me you don’t want to go there.
Before I went back university and then opened my own law firm I used to deal with these lenders when I was trying save people from foreclosure and they want their pound of flesh and if they don’t get it they will dismember you asset by asset.
So how do banks use CCR to put you on the rack and squeeze more money out of you?
As I explained Comprehensive Credit Reporting (CCR) is allowing lenders to watch your repayment history like never before and banks are using that information to make sweeping judgement calls about credit worthiness?
Sounds crazy right?
Like some Orwellian nightmare or bad Channel 7 reality show, (Yes Channel 7 is now showing Big Brother); because let’s face it, if lenders aren’t lending, they aren’t making money.
Here’s the trick and why lenders now love CCR.
It means they now have a good excuse not to deny you credit, but to charge you a higher interest rate.
It’s their way of sending you off for financial “re-education” at your expense.
Here’s how they will do it…
Whether buying for investment or as an owner occupier, not too many of us would purchase without first having a chat with the bank before we raised our hand at auction or made a formal offer.
So, you’ve now had the chat with the bank and you’re bidding with gusto on a sunny Saturday morning.
The hammer falls and you win the auction
Now you are off to the bank to make that conditional approval formal, and this is where they get you.
The bank knows you’re committed to buy and chances are, they know you are committed to them also.
It’s here at the point of no return that the bank pulls out your comprehensive credit file.
Now, if it’s clean as a whistle (and I don’t see too many of those), you’re fine and they aren’t going to have any reason to ratchet up your rate.
But, say for example you’ve recently made an enquiry with a one of these new buy-now-pay-later services, well, guess what, that’s recorded on your credit file and viewed negatively.
Well if you can’t afford to buy something for a few hundred bucks up front, you may be a credit risk.
Oh, and wait a second, you missed paying one of your kid’s phone bills for 3 months — because they’d hid it from you – because they’d downloaded some expensive game they shouldn’t have, well that’s recorded too.
Or perhaps you changed address and missed a couple of other bills… after all you weren’t silly enough to buy before you’d sold your house, but you might have forgotten to change your address to your mother-in-laws for the three months you lived down stairs while you found the dream home you just signed on the bottom line for.
Those late payments are all on your credit file!
Now we better not find too many blemishes, because you’ll be rejected for this loan outright and be forced to a second tier lender, and remember what I said about them!
Comprehensive Credit Reporting is much like a driver’s licence, you start out with a full set of points, 1200 to be exact and every time you do something wrong you lose some.
It doesn’t even have to be wrong necessarily, it’s more about being financially careless according to those who make the lending rules.
If you get to the point where you have less than 500 points then you will lose your licence to borrow.
Everything in between will be just like trying to get car insurance with a bad driving record, yes, you can get it, but you will pay more.
And your CCR could contain errors
What else might surprise you is that mistakes are often made on your credit file — not by you but by the financial institutions filing reports.
They could report someone else’s bad deeds on your file because the name is similar, or they may make an unauthorised enquiry into your credit.
That is some overzealous loan broker wants to check your credit worthiness without telling you, and it comes up on your file.
Commonly we have clients with defaults listed on their credit report where the creditor didn’t go through the proper process.
How common is this?
Well a recent ASIC report reveals that more than 3.8 million Australians might have these types of mistakes on their credit file and not know about it.
How do you know?
Well check your credit file at www.FreeCreditRating.com.au for a start.
O.K.- the bank won’t give you that sweet deal because they reckon your credit file is dirty.
All because Comprehensive Credit Reporting now tracks your repayment history, and just 14 days late is enough to see you put on the naughty list!
And banks aren’t as forgiving as Santa.
“But I was pre-approved” I hear you say with tears in your eyes as you calculate your new monthly repayments at the higher interest rate…
The dream of home ownership, with occasional overseas holiday starts to look more like suburban servitude, with the bank your all-seeing master that will control your wallet for the next 3 decades.
So, what can you do to clean it up?
Well the easiest way is not to blot your copy book to start with.
- pay your bills on time,
- don’t default on loans and most importantly
- don’t shop around for credit by entering your details and seeing if you are approved.
You can get a list of the best lenders from a host of websites whether it’s home loans, credit cards, personal loans or buy now pay later services, but you don’t need to give them your details until you are ready to move forward with a purchase.
Then, as I said, check your credit file free and it’s easy.
You can do it once a year at www.freecreditrating.com.au.
Ok you’ve got your credit report and it’s bad (or less than perfect) and you have got some enquiries on your file.
The bank will now use this to up your interest.
The good news is…
In most cases a blemish on your report can be removed, because for a credit provider to mark your credit file they first need your permission.
You probably gave them as you clicked through the terms and conditions agreement on their website (nobody reads that and they know it), but that still doesn’t mean they have to stay there.
Here at MyCRA Lawyers we have honed the removal process and, in most cases, can have these deleted pretty quickly.
And this may mean that you could have access to a lower interest rate.
The next blot are defaults and default Court Judgments
These are a little more serious, but we can get them removed.
It is a legal process that can only be performed by a registered solicitor but it’s a process we have pioneered over the past decade.
You need to be a little bit careful with these, and make sure you’re only using a law firm qualified to act for you in this area.
If you don’t, you can quickly find out higher interest is only the start of your problems.
We’re regularly called on to act for people who’ve followed the advice of backyarders who say they have legal experience, who quickly fall foul of the nuances of credit reporting law.
These laws spread across the Privacy Act, the Banking Act and the National Consumer Credit Protection Act and a host of other Acts that may impact your credit file.
As you see these defaults and enquiries removed from your credit file, you’ll notice a direct correlation between credit score going up, and the interest rates you’re being offered going down.
The savings can be huge, depending on the size of your loan.
We’re talking tens of thousands of dollars a year, and over the life of a loan the savings can go into the hundreds of thousands of dollars!
Guest Author:About Graham Doessel With more than 20 years’ experience helping consumers in financial difficulty, Graham Doessel is Australia’s foremost expert in credit reporting law and CEO of Consumer and finance law firm MyCRA Lawyers. Graham is a pioneer in credit repair and has personally had laws changed helping consumers by directly improving the credit scores of hundreds of thousands of hard working Mum & Dad Investors in this one move alone. MyCRA Lawyers