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Are you credit-worthy?

by Tracy Evans | 25 Jan 2017

Find out how credit reporting works, how to improve your credit score and why it’s important for retirees to maintain.

 

Lena Seejar* was surprised when her application for a new mobile phone account was refused because of her credit history. The application was denied after the phone company contacted the credit reporting agency Veda to check Seejar’s credit rating and discovered she had defaulted on a bill.

“I wasn’t aware of any outstanding debts, I usually pay everything on time,” she says. Seejar discovered Veda had a listing for an unpaid bill from Telstra that had been issued two years earlier at a previous address. The bill had been sent there and not forwarded on to her by the new owners.

After paying the bill and a few phone calls to Veda and Telstra, Seejar was able to have her credit file amended.

It was a lesson in keeping an eye on the information being collected, says Seejar, who now plans to check her file every 12 months or so.

Scoring points

Australia’s four credit reporting agencies (see box) collect data about everyone who applies for credit and create a credit profile. The agencies are used by credit providers – such as banks and phone companies – to check your ability to repay.

That credit profile is available as a single credit score – a number that represents how creditworthy you are. While each of the credit reporting agencies uses a different scoring system, it’s useful to obtain your score and a copy of your credit report regularly. If your score is low, it gives you a chance to investigate further, in case a mistake has been made. It’s also a good way of checking that your credit details are secure and haven’t been used by someone else.

On the plus side, higher scores may be good news if you’re planning to apply for a credit card or a loan.

Some lenders may offer a better interest rate to those with good credit scores, said Belinda Diprose from credit reporting agency Veda.

Ben Marshan, Head of Policy at the Financial Planning Association (FPA) said banks are likely to charge you higher interest rates and fees where they think there’s a risk, based on your credit score, that you may be late with payments or ultimately default.

For retirees trying to live within their means, or those planning to start a new business venture, credit cards and overdraft facilities can be a useful way to manage cashflow to take account of large or unexpected expenses, said Marshan.

“So, cheaper interest rates and fees obviously save you money in the long run, which is important in retirement when you’re living off your savings.”

Increasing your options

Improving and maintaining your credit score as you get closer to retirement is even more critical, said Jason Andriessen, General Manager of Marketing and Financial Planning at StatePlus.

“More people are living longer and for many people they’ll be in retirement as long as they were in the working phase of their lives. Those approaching retirement could be looking to live another 30 or 40 years,” he said.

“That’s a long time and you want a good credit rating becauseit provides you with options for the future.”

For example, if you’re planning a retirement filled with travel, Andriessen said a good credit rating could mean a “terrific credit card deal with better rewards points. That could have benefits if you’re doing a lot of travel”.

Similarly, those considering a major financial decision such as a reverse mortgage may be able to find a better deal on more favourable terms if their credit rating is good.

Although, for those who can afford it, the most useful advice is to retire free of debt, Andriessen said.

*Not her real name

How to find your credit score

You can obtain your credit score instantly on websites such as www.getcreditscore.com.au and www.finder.com.au or you can contact one of Australia’s four credit reporting agencies to get a copy of your credit report:

Veda Advantage: veda.com.au – 12 8332

Dun and Bradstreet: dnb.com.au – 13 23 33

Tasmanian Collection Service: tascol.com.au – (03) 6213 5555

Experian: experian.com.au – 1300 783 684

How to maintain a good credit score

Belinda Diprose from credit reporting agency Veda has some tips and hints to help you keep your credit rating high. 

1. Pay loan repayments and bills on time.

2. If you move house, don’t forget to change your address with all credit providers and utility companies.

3. Talk to your lender early if you’re struggling to make repayments. Lenders have hardship provisions to help people get through a bad patch.

4.For those planning to be a guarantor for a loan, be aware that your own credit history will be accessed by the lender.

5. If you’re shopping around for the best deal on a loan or credit card, do your research before you make a credit application. Making a lot of applications within a short time can affect your credit rating because lenders may see it as a sign that you could be under financial pressure.

6. Obtain a copy of your credit report at least once a year to check that it’s accurate.