The New Laws Affecting Your Credit Score (And Three Things You Can Do to Improve It)
Published 9:30 pm 17 Nov 2019
DG Institute founder, Dominique Grubisa explains why the new credit reporting laws could potentially prevent you from boosting your credit score. Plus what you can do to clear mistakes from your credit history.
Australia has one of the world’s highest debt-to-income ratios. In fact, we rank second in the world, behind Switzerland, when it comes to this issue.
In other words, millions of Australians find themselves indebted. And it’s not just those who are on low incomes. There are many people who earn middle or high incomes who have enormous amounts of debt.
Of course, all of this debt affects your credit score rating. And that can make it more difficult for you to get a home, personal, or auto loan.
That means your goal is to create a good credit score. This is especially important if you’re aiming to enter property investment, for which you’ll need to secure loans.
In this article, we examine how to increase your credit score. But first, it’s crucial that you understand the factors that affect credit scores and why they matter in the first place.
Record Low Interest Rates – And Why They Matter?
Over the past few years, we’ve seen the national interest rates drop consistently. In fact, the rate fell to 0.75% in October 2019, which means it’s edging ever closer to 0%.
The Reserve Bank of Australia (RBA) controls the national interest rates. And according to RBA’s Governor, Philip Lowe, we shouldn’t expect increases any time soon. In an article published in The Guardian, he’s quoted as saying:
“<it’s> reasonable to expect that an extended period of low interest rates will be required”
Lowe’s pointing to the fact that various economic conditions have resulted in this continued decline in the rates. And with the climate of uncertainty, your credit history may become a bigger factor in the future. That’s why it’s so important to think about how to improve your score.
We’re seeing the effects of this situation in the way that the government’s reacting. In recent months, we’ve seen lower GDP growth forecasts and a pessimistic outlook for wage growth. There are even fears that a recession is on its way in Australia.
Again, these are all reasons why you need to start thinking about your credit file and what you can do to erase bad credit.
Let’s dig into that a little bit more…
Your Credit Score – Why It Matters?
Whenever you apply for a loan, no matter what type, the lender will look at your credit score. They want to see that you pay your bills on time and that there are no issues with any credit account that you hold.
Let’s assume the lender doesn’t like what they see. In the worst-case scenario, they’ll refuse to offer you a loan at all. If you do get an offer, you’ll usually find that you have to pay a higher interest rate. Plus, you’ll find your access to beneficial loan features limited.
This means that the rates the lenders advertise are not always accessible. If you have a negative debt payment history, you’re unlikely to get a good rate.
Compounding this issue is the fact that many people don’t realise how many things can affect their credit score. We all know that failing to take care of our credit card balances has an effect. But you may not know that making multiple loan applications in a short period of time also hurts your score.
When you’re caught up in credit issues, you may find yourself feeling hopeless.
However, you do have options. There’s more to debt than solvent and insolvent, which means there are ways to fix bad credit. And with recent changes to credit reporting laws, you have even more options.
Here are a few things to keep in mind when you’re trying to improve your credit score.
Tip #1 – Check for Non-Compliance
For years, credit providers have held consumers to a certain level of compliance. However, it’s only fair that said providers should meet those levels of compliance themselves.
That’s not always been the case and there are many cases of debt collectors breaking laws to get their hands on consumers’ money.
So, how do you check for non-compliance?
Firstly, you need to have access to all of the documents attached to any loans that you may have. These outline what your lender can and can’t do. Plus, you can leverage new credit laws to ensure the lender hasn’t offered you a loan that they know you can’t service.
The issue is that many borrowers don’t have access to these documents. If that’s the case, you can request them directly from the lender. And what’s more, you can refuse to pay another cent of the debt until you have all of that documentation.
At DG Institute, we check these documents against almost 100 points of data to find examples of non-compliance. And if we find an issue, you can use that to renegotiate your debt so that you pay cents on the dollar. Of course, this has a beneficial effect on your credit score.
Tip #2 – Check for Marks Made Without Permission
You have the right to access a free credit report once per year from a credit reporting agency. It’s crucial that you do that so you can see what marks your creditors have made against you.
The reason for this is that your credit provider has to ask for permission before they can mark your file. Any that didn’t receive your permission can be taken off the report.
In a recent DG Institute podcast, we spoke to Lawrence Barlow. He’s a former debt collector who’s developed a software package that helps consumers leverage the credit reporting code.
He discussed a client who had a credit score sitting at the 400 mark:
“When we checked the file, we found out he had a whole lot of unusual credit inquiries. And for example, there was PayPal from Singapore, which he’d never been to.”
Lawrence then prepared some compliance breach letters to notify the lenders of these issues. Thanks to the credit reporting code, the client had their marks removed and the score rose to over 800.
The point is that a mark on your credit report isn’t set in stone. It’s possible that there’s a compliance issue that can help you with improving your credit score.
Tip #3 – Check the Three Pillars
There are three pillars of compliance that a lender must meet:
1. They must make reasonable efforts to ensure you’re able to service the loan.
2. The lender must establish that you have a legitimate reason for taking out the loan.
3. The lender must act in the consumer’s best interests.
But what often happens is that lenders don’t follow these three pillars. Instead, they allow consumers to borrow and then sell the debt to another company a few years down the line.
There’s usually a compliance breach in this situation. If you can identify that breach, you may be able to reduce or eliminate the debt. This will result in large improvements to your credit score.
Always Check for Compliance
The key takeaway here is that lenders have just as much of a duty to compliance as borrowers. If a lender fails to uphold those duties, you may see your credit score drop without a legitimate reason.
Identifying and taking action on these breaches can help you to improve your credit score.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.