4 Ways You’re Trashing Your Credit Rating (Yes, You Have One)
If you’re a functioning adult with a mobile phone, there’s a credit file out there with your name on it. You’ve never seen the thing, but it casts a shadow over your future. Here’s how not to mess it up.
#1 Bills first, beer later
Yeah I know, Laneway tickets just went on sale. You found these awesome tie-dyed buckskin Doc Martens online and they were half price so you had to get them, like, immediately. Then Friday night drinks got out of hand and you woke up with someone else’s mascara smeared across your cheek and a totally empty wallet. Life is full of awesome, costly adventures and paying bills is boring, so you’re always hitting the snooze button on the unpaid bills. They’re not really due until you get the final demand notice, right?
Wrong. Actually this used to be true, but not anymore. As of March 2014, Australia uses a comprehensive credit reporting system that tracks not just if you pay but when you pay your bills. If you constantly put it off until the third and final notice, the delay goes on your consumer credit report (CCR) and affects your credit score.
Conversely, if you always pay your bills on time, you’ll have the shiny credit score of a person who always pays their bills on time. I like to think of this person as A Nerd with Options.
#2 Small fine, big problem
So some time in the late ‘90s when video stores were still a thing, you borrowed Can’t Hardly Wait for the umpteenth time and had a three week binge, copping $24 dollars in video store late fees. Which, because video store late fees were a crime against humanity, you decided to ignore. Who the hell is going to chase you for a measly $24, anyway? How could this ever come back to haunt you?
As it happens, an unpaid debt has to be worth at least $150 to be listed on your CCR, but there are ways to make a $24 late fee balloon above the threshold. If your video store owner sells the debt to a collection agent and collection fees are added to the total, which you continue to ignore, you could end up being defaulted. Default = doom in the credit world. It’s a black mark against your name that stays on your file for five long years, even if you pay the outstanding money. For most lenders, even a small default is a big fat stop sign, which can affect your ability to get a personal loan, car loan, credit card or mortgage.
The point here is that Can’t Hardly Wait is an underrated classic of the house party genre and no bill is too small to ruin your life.
#3 Open. Your. Mail.
There’s a particular avoidant personality type that believes the things they do not acknowledge do not exist. Like bills, for example. Any mail that is not clearly an eBay delivery, imported vinyl or a card from their grandmother containing cash money gets relegated, unopened, to a dusty pile of financial irresponsibility. This is not good.
Obviously, not opening your mail (whether e-mail or paper) in a timely fashion makes it hard to pay your bills in a timely fashion. It also prevents you from seeing the red flags of Default Doom (DD) waving on the horizon. By law, a credit provider must send you two separate written notices before they can default you and those notices must be sent at least 30 days apart. You then get a bonus 15 days to pay the bill before DD kicks in, presuming you’ve opened the mail that says, ‘WE ARE ABOUT TO DEFAULT YOU.’ Presuming you open your mail.
#4 Applying for a loan is not like Tinder
You don’t get to swipe right endlessly until you find someone who likes you. Every time you apply for a loan, a credit card, a car loan or a mortgage, an enquiry is logged on your credit file. A single ‘enquiry’ is harmless enough but ‘enquiries’ plural is a very bad look. It implies, to use the delicate phrase, “financial stress”, which means you’re desperate for credit but no one will give it to you.
The best way to avoid a whole bunch of suspect enquiries on your CCR is to know the answer before you ask the question. Unless the loan is secured against a house or a car, lenders don’t really want to know why you need the money; they want to know how you’ll pay it back.
They want to know how much you earn, how much debt you have already and what your expenses are, including rent, food, clothes, travel and entertainment. If your CCR is clean (use a “soft touch” service like this to check your credit score without leaving an enquiry on your file) and you have enough money left over to meet the monthly loan repayments (banks have this thing called a repayments calculator – use it!) your loan will probably be approved.
When it comes to mortgages where big money is at stake, the parameters are a lot tighter. Don’t try and figure it out yourself, use a mortgage broker.
Maybe you’re not into that whole petite bourgeoisie property thing and you don’t see yourself getting a mortgage. Maybe you prefer a cash system to a 17% lending rate on credit cards. No problem, for now. But you don’t know what opportunities and challenges lie ahead. The worst thing you can do is decide that you’re too broke to worry about money – that’s a greased up slip ‘n’ slide to an even bigger hole. Be smart: figure out where your financial choices will lead you. And, most importantly, make good choices. Piece of cake.
Simone Ubaldi is a ghostwriter, music journalist, film critic and has co-authored four books, including memoirs of Bon Scott and Mark ‘Chopper’ Read.
(Lead image via Stocksy)