You have probably heard the term “credit history” thrown about from time to time. But let’s talk about what it actually means and why it’s so important:
What is credit history?
Your credit history is a compilation of data documenting key components of your past financial activities. This includes things like applications for credit, bankruptcies, court judgements, overdue debt, court writs, personal identification information and commercial credit information.
Why is it important?
Whenever you apply for any line of credit, your potential lender will check your records and compare them alongside their own set of specific criteria for lending. They may also check official registers like the Personal Property Securities Register (PPSR) in order to determine the status of your assets and potential liabilities using specialized software from firms like GlobalX Legal Solutions (click here to learn more about it).
The details revealed by your credit history and personal property will give your lender all they need to know about how reliable you are when making repayments, so maintaining a good record is crucial for everything from getting a credit card through to applying for a home loan.
You can check your own credit rating
In Australia, every individual is able to access their own credit report. This means you can see what a potential lender will see, so you can assess your likelihood of being granted finance before you apply. It is worth keeping in mind that rejected finance looks unfavorable, so consider the outcomes before each application.
It is possible to improve your credit history
While your credit history doesn’t make any judgements about whether your record is ‘good’ or ‘bad’, there are programs which some lenders may use which will label it from below average to excellent. If your credit report is less than favorable, it can make getting approval for finance difficult, which is why you may be looking to improve your credit history. This is indeed possible – you will need to decide which approach you will take to do this.
If you have defaulted on a payment in the past, you may want to contact your credit holder to negotiate paying off the debt. In the situation where you have multiple debts owing, you may wish to consolidate your debts. This allows them to be paid back faster. If that is not an option, you may need to prioritize debts – typically you would want to get secured debts, like home or car loans, paid first to avoid having to hand them over to your credit holder.
If you believe a default was recorded in error, be sure to dispute it by engaging a mediator or lodging a complaint with the generator of the report.
Your credit history has the potential to affect your life in many ways, and may pop up when you least expect it. By being aware of what your report looks like, you can manage your finances appropriately and keep your expectations realistic.