Understanding Comprehensive Credit Reporting

How do credit report’s function?

Credit reports are delicate and require careful handling. Various credit bureaus or credit recording bodies maintain these reports, with Equifax (formerly known as Veda) being one of the most popular ones. Whenever you make an inquiry to a bank, credit union, building society, or other credit providers, it is recorded as an inquiry on your credit file. These inquiries remain on your report for a period of five years from the report's generation.

Your credit report also includes details about defaults, bankruptcies, court judgments, company directorships, and past directorships. Again, this information remains on your credit file for five years from the date of listing.

With the implementation of Comprehensive Credit Reporting, credit reporting bodies are now required to collect and maintain information on various consumer credit accounts, such as credit cards, car loans, personal loans, mortgages, and some short-term loans. The comprehensive reporting encompasses the last 24 months (two years) of account history, including whether the payments were made on time or the number of days the payment was delayed.

What factors affect my credit score?

• To determine your credit score, credit bureaus employ algorithms that consider several key factors, including:
• The frequency of credit applications and inquiries within a specific time frame.
• The type of loans you have applied for.
• The total amount applied for over the five-year span of your credit file.
• Your repayment history for consumer accounts in the past 24 months.
• The age of your credit file and, in some cases, your age.
• Any defaults, court judgments, or bankruptcies.

Sometimes, even when you request a quote for finance from your bank, they may access your credit file, leaving an inquiry without your knowledge. This still impacts your credit file and score.

The number of inquiries on your credit file significantly affects your credit score. Frequent credit applications can lead to a below-average credit score, which affects the acceptance and approval of your applications by banks/lenders and can also impact the interest rates offered. Certain types of loans, such as inquiries to payday lenders (e.g., Cash Converters, Cash Train, Nimble), can have a greater impact on your score than a mortgage.

TIP: Only apply for credit when necessary and approach banks/lenders when you have found the right deal for yourself. This preserves your credit score and prevents potential negative effects on future credit applications. Lenders and banks are increasingly scrutinizing credit files and scores.

Here's the good news...

Thanks to comprehensive reporting, a positive repayment history with consumer credit accounts can boost your credit score. If you have demonstrated responsible borrowing and timely repayments, the algorithm will take this into account and enhance your credit score.

But there's a downside...

With a clearer view of your financial health, credit providers can make better-informed decisions regarding your creditworthiness. A poor credit history will be more apparent, potentially leading to credit denial.

However, all is not lost. Under the new system, if you pay off overdue payments and consistently meet your financial obligations, credit providers will observe your improved loan management (although defaults will remain on your credit report for five years).

Finance and mortgage brokers possess the expertise to assist with credit applications. Brokers often have access to credit files via Equifax and typically perform "soft touches" on credit reports. Soft touches refer to when a broker or, occasionally, a lender accesses a credit report without leaving any inquiry on your credit file.