Credit reports: what you need to know

A credit score represents your creditworthiness – the higher the score, the better you look to lenders. Typically shown as a number out of 1000, your score is on a file held by credit-reporting agencies such as Centrix, Equifax and Illion.

Every time a company runs a credit check about you, it goes on the file.

Credit-reporting agencies can collect and hold personal information on you for up to five years. Banks, lenders, power companies, telcos, insurers, landlords and employers can pay to access this information to see if you’re a credit risk – and whether they want to do business with you.

Multiple checks

Maintaining a sparkling credit score isn’t just a matter of keeping your financial slate clean. The more credit checks you have, the more likely companies are to turn you away. Multiple credit checks in a short period are seen as a sign of “credit distress” – in other words, you’re having trouble paying your bills.

But the problem is these checks can go on your file even when you’re just inquiring about a product.

Even regularly changing phone or power companies can negatively affect your credit file. That’s a concern considering there were 433,892 switches by electricity customers in 2019. Every time you swap providers, the new company will likely run a credit check, which gets recorded on your file and can remain there for several years.

Equifax and Illion acknowledged multiple checks over a year or two may influence credit scores. Centrix said multiple credit checks can lower a credit score.

Quotation inquiries

Credit reporting is overseen by the Privacy Commissioner. The commissioner’s office lays out the rules, investigates possible breaches and monitors the compliance of credit-reporting agencies.

Since 2012, the rules have let banks and other credit providers run a quotation inquiry – rather than a credit check – when you’re shopping for credit. This gives them access to your financial information, but the inquiry isn’t used in creating a credit score.

However, lenders have been slow to take up using quotation inquiries. In 2019, the rules changed again to require credit providers to offer quotation inquiries if they’re using “risk-based pricing”. With risk-based pricing, what you’re charged is based on the lender’s assessment of your creditworthiness. In other words, if you’re considered a riskier proposition, you’ll be charged a higher interest rate.

Equifax said quotation inquiries made up 10 percent of its credit inquiries. Illion and Centrix didn’t provide figures, though Illion stated quotation inquiries weren’t widely used.

Lenders must tell you if they’re planning to run a credit check on you. If you’re shopping around, ask if the company will do a quotation inquiry. Avoid a full credit check until you’re sure you want to take out that loan or switch utility provider.

Positive reporting

The damage done by shopping around for credit or switching electricity companies can be offset by other information the credit-reporting agency holds on you.

In 2012, both positive (such as paying bills on time) and negative (such as defaulting on loans or declaring bankruptcy) information began being passed on to credit-reporting agencies. This is called “comprehensive credit reporting” or “positive reporting”. Defaults under $125 won’t be reported on your file.

Positive reporting is voluntary and not all companies are providing information about your bill payments.

However, there’s likely to be some data on your file. The commissioner’s office said finance and utility providers are increasingly providing payment data to credit reporters.

Centrix, Equifax and Illion stated they hold at least some payment history for most consumers.

Not so simple

Illion subsidiary Credit Simple instantly provides your credit score when you sign up.

Until November 2019, Credit Simple let lenders market offers directly to its customers on its books. However, the Credit Reporting Privacy Code expressly restricts credit reporters and related companies from using credit information for any purpose related to marketing or direct marketing.

In September 2020, after an investigation by the Privacy Commissioner, Illion was found to be in breach of the code. The commissioner also found other aspects of the arrangement between Illion and Credit Simple didn’t measure up to the code’s requirements and put them on notice to fix the problems. Illion said it’s made changes as a result of the commissioner’s findings.

Our advice

• We recommend asking for a copy of your credit report from the three agencies once a year (you can do this via their websites). Review your file for errors before you apply for or re-fix a mortgage – even small issues can affect a bank’s decision. If you rent or frequently move, check your credit report has the correct addresses on file.

• What if there’s a mistake? If your credit file has an error, ask for a correction immediately and in writing. Set out your reasons clearly and provide evidence where possible.

• If an error has led to debt collectors calling, tell them the debt is in dispute. Take notes of the date and time of any calls and to whom you spoke. These records will be useful if there’s an argument later over who said what. If you believe you’ve been a victim of identity theft or fraud, ask to freeze your credit report. Credit-reporting companies must freeze your credit information for 10 working days.

• You can ask for the freeze to be extended but companies can refuse if they reasonably believe there’s no risk of fraud.

• If you can't resolve matters, complain to the Privacy Commissioner.