Privacy legislation in Australia permits credit reporting agencies to create credit files on Australian adults. There are clear regulations about the information that can be stored, who can access it, how it is corrected, and the procedures that must be in place to access or change information on the file. Having worked for a credit rating agency in the past I can report that they do take very seriously their responsibly to protect an individual’s privacy according to the regulations: it is a major career limiting move for an employee to violate procedures around accessing credit files (not the reason I no longer work there in case you were wondering).
What information can be stored on my credit file?
Currently your credit file list any defaults you have had in the past five years, or any enquiries made on your file by a credit provider in order to assess your credit worthiness. Also, any bankruptcies, court judgments or court summons for the purpose of collecting outstanding debts are listed for seven years. Your full name, date of birth, and last two residential addresses are also stored to correctly identify you. Any accesses of the file are stored but are only accessible to you or can be accessed only for administration.
How is my credit file used?
Your credit file is probably used more often than you realise. Financial institutions providing mortgages, credit cards and other loans use your credit file when deciding whether to grant a loan. In fact, any business that provides a product or service before being paid is a credit provider and so could in theory run a credit check. In practice most phone companies and some utilities run credit checks. A company can only access your credit file with your permission so check the terms and conditions if you have concerns. Some companies have a policy of not providing credit to anyone with a bad credit history. Mostly your credit file is not viewed by a person at all, more likely the information on your file is fed straight into a computer model which uses the information to score how likely you are to make good on your debts and a decision to grant your loan is made automatically. One of my jobs was to create these models.
What happens if I have a bad credit history?
For some lenders that will effectively bar you from being granted the loan, regardless of how your circumstances have changed since then. You will find it very difficult to take out a home loan if there is evidence of a bad credit history. Some lenders on the other hand won’t even look at your credit file, but you will almost certainly pay for the privilege through a higher interest rate. If a lender does use your credit file and there is evidence of a bad credit history at any point, you will find yourself marked as a risky prospect for a loan. There are shades of grey, as those who have a bankruptcy are riskier than those with an unpaid default, who are in turn riskier than those with a default that was paid back in full. However, Australia has a very unforgiving system, so any evidence of bad credit will mark you out as high risk and there is very little that can be done other than waiting for the information to fall off your credit file. This is a natural consequence of the fact that lenders have very little objective information available to them: when there is next to no information any hint something negative casts a very long shadow. This is the major argument advanced by the proponents of the changes to the credit system and they are essentially correct.