Credit ranking worth the research

By By Katherine Jimenez, From: The Australian, 10 February 2010

AUSTRALIANS may be among the best in the world when it comes to being financially savvy and shopping around for the best deals, whether it be for credit cards, homes loans or a term deposit.

But one black spot that is alarming industry experts is consumers' lack of knowledge about their credit profiles.

One staggering statistic comes from credit bureau firm Dun and Bradstreet, which shows nearly 86 per cent of women in Australia don't know what their credit profile looks like, reports The Australian.

"The results are quite telling,'' Dun and Bradstreet chief executive Christine Christian says.

"And what they do say is that Australia lags behind the rest of the world here.''

Ms Christian says Australian consumers have been poorly educated when it comes to understanding their credit profile and the consequence is credit choices that can have a long-lasting negative impact.

Consumers, she says, are generally unaware how their credit report works and have almost no idea about how to get a copy, even though it is legally available to every consumer.

Rival credit bureau firm Veda Advantage reports similarly poor inquiry numbers. Veda holds about 14.5 million Australians' credit files.

The firm estimates it gets about 242,000 inquiries (equal to 1.5 per cent) a year from consumers wanting to access their files.

To put that into perspective, Veda says that in Britain the inquiry level is closer to 2.9 per cent, and in the US it's about 8.2 per cent.

Ms Christian says the poor inquiry levels are in part due to the present negative-only reporting system in Australia, which only records negative data on an individual.

"Sometimes the first time anyone knows they have a poor credit history is when they go and apply for new credit, only to be declined,'' she says.

It's only after they seek more information around the decision by the lender, she says, that the consumer finds out a phone bill they did not pay when they were 18 has come back to haunt them.

A default on a payment for as little as $100 can stay on your credit history files for up to five years.

Such a stain on your record, Ms Christian says, prevents you from obtaining finance from mainstream credit providers, forcing consumers on to alternative sources, such as sub-prime lenders that charge much higher interest rates.

The repercussions arising from a bankruptcy are much tougher: consumers are blacklisted by lenders for seven years. A credit profile report also records the number of credit applications a consumer has made.

A high number of applications can reflect negatively on your creditworthiness, regardless of whether the applications are successful.

There are two reasons for obtaining your credit file, Veda's head of external relations Chris Gration says. One is to check its accuracy and the other to prevent identity fraud.

"Regularly viewing a credit report is an important part of understanding how your lenders, current and future, will view you,'' Ms Christian says.

"If you are informed, you are empowered."

Later this year, new credit reforms are due to be introduced which are set to make it harder for consumers to get a home loan or personal loan if they have a bad credit history.

Under the new National Consumer Credit Protection legislation due to come into effect on July 1, consumers can expect greater scrutiny and visibility of their credit records, specifically whether they pay your bills on time.

There are only two credit bureaus in Australia, Dun and Bradstreet and Veda Advantage. All consumers have access to their credit profiles through their websites.

How to check your file
* Veda Advantage's website is at mycreditfile.com.au
* Dun & Bradstreet credit reports are at http://dnb.com.au