Only have one or two credit cards? Well, shine that halo – in the new regime of credit reporting you’ll be a ‘good’ risk and more likely to get the thumb’s-up for a loan.
So far credit bureaus have only reported ‘black marks’ on consumers’ credit worthiness. But thanks to new rules from March 12, consumers can win points for paying bills on time and having fewer lines of credit because banks and financial institutions will be able to view both the good and the bad on their credit history.
‘Put simply, consumers get the benefit of having their good conduct recognised and taken into account when a credit provider is considering their application,’ says Kim Jenkins, managing director of credit bureau Experian. ‘It will also allow consumers to negotiate better terms as they will be aware of their credit worthiness through their credit report.’
But what about if you’ve become a profligate credit card holder and opened four or five cards because you want one for the free travel insurance, another for the loyalty program and others because of their low rates? Even if you’re not using all of them, a potential lender will take a dim view.
‘From March lenders will see all the credit accounts you hold. So if you have four credit cards and the limit on each is $10,000, while they don’t know what the actual balance is they will assume the worst – that you owe $40,000 – and turn you down for a loan,’ adds Jenkins.
But there’s time to redeem yourself, says Alex Parsons, CEO of financial comparison website RateCity.
‘A consumer who has had a sketchy credit history with a black mark in the past but is now working hard to rectify their credit situation stands to benefit the most from the new credit reporting,’ he adds.
‘That’s because banks will have more insight into their credit file. But this consumer will need to be diligent in making an effort to improve, because the banks will be watching.’
1.Check your credit report annually
2.Be careful about shopping around
Having too many credit accounts will highlight you as a bad credit risk. If you have more than just a few credit cards, you’re better off consolidating them into one account. Also reduce any unnecessarily large credit limits you have, suggests Parsons.
3.Beware default payments
This is where a payment is worth more than $150 and is 60 days overdue. By contrast, a missed payment – for example if you are on holiday and miss paying your phone bill by a few days – will not go on to your credit file.
4.Seek help early
If you’re having difficulty servicing a debt, ask your credit provider for help such as setting up a payment plan. This way you keep your commitment to pay the debt and the provider gets the money repaid.
Set reminders on your fridge or on your phone so you don’t miss any payments. Set up automatic direct debits from your transaction accounts to pay bills before the due date, says Parsons.