Category Archives: CREDIT RATING

‘Credit repair’ agencies charge big money for what you easily can do yourself

Hi Nicole, I’m not sure why but I was just turned down for a car loan. I have a steady $80,000-a-year income. I don’t have much in savings but have started putting away $200 a fortnight. I suspect there might be something dodgy on my credit record back from my student days. I called a credit repair service I found – please don’t name them – that says they can clean up my credit file. I’d have to pay $1200 but they say I should be able to get my car after that. Is this a good idea? – Mike, Maroubra

No Mike… if this is not a scam, it’s darn close to it.

Has your debt levels spiralled out of control & gone off the rails? Then read this to FIX it.

So-called credit repair agencies have the same ability to rescue your record as you do yourself. Many will also try and migrate you onto other products – everything from a “budget management” program where you hand over your purse/wallet strings “for your own good”, to a negotiated “debt agreement” (if you were struggling with repayments) that’s extreme and similar to bankruptcy.

For this they’ll charge nose-bleed upfront fees and in many cases hit you with ransom-like, last-minute demands for more money.

But in the words of the Consumer Action Law Centre, which often deals with the messy aftermath: “These predatory companies are flourishing in a regulatory void. The current laws don’t prevent the harm.”

Do this instead Mike

1. Obtain a free copy of your credit report from Equifax (Veda rebranded), Experian or Dunn and Bradstreet. Don’t be fooled into paying for this; you’re entitled to one snail mail copy a year (and Dun and Bradstreet will even email it after a three-day delay).

Also for free you can get your credit rating itself – yes, we’re like the US now with a score and, increasingly, interest rates are based on it – from finder.com.au. But you’ll need to create an account and (as with all such services) should expect emails from them.

2. Go through this with a fine-toothed comb. What’s on there that has hurt you? A bill missed by 60 days or more? Perhaps your name was on a share house utility … and your flatmates skipped out on it? It will be five years before this is expunged from your history – and (sorry) you’ll need to pay any outstanding debt.

3: Checking for errors is the only potential quick fix. Contact the provider first, then its ombudsman if necessary and finally a credit reporting agency to correct the mistake.

Meanwhile, don’t make more loan applications until you’re squeaky clean – they’ll drive your score down further. And take heart: Australia’s consumer ministers have just resolved to look at regulating debt management firms and announced a consumer education campaign to publicise the free alternatives. National Debt Helpline: 1800 007 007 or ndh.org.au.

Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.

Consumer fears raised as Veda credit reporting agency converts from Financial Ombudsman Service to the Credit and Investments Ombudsman

DEBT-POSTER-SIGN image www.money-au.comDEBT-POSTER-SIGN image www.money-au.com

Experts fear the chances of consumers and business owners having their disputes with credit reporting agency Veda swiftly resolved will be reduced after it switched from the “gold standard” ombudsman to another.

Veda moved from the Financial Ombudsman Service (FOS) to the Credit and Investments Ombudsman (CIO) in November last year.

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It has the right to choose between  the external dispute resolution schemes, but FOS has five times as many full-time employees, half the staff turnover rate, and a better standing amongst financial counsellors, compared to that of CIO.

A Sydney-based credit repair company, that asked not to be named, said it was concerned that business owners wanting to dispute a commercial default listing on their credit files would lose out.

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An incorrect listing can reduce the credit score, lowering the chances of getting a loan at a good rate.

“In our experience of making … complaints, FOS is the gold standard in external dispute resolutions schemes,” she said

“The FOS holds credit providers accountable for their actions beyond the Privacy Act, and includes other relevant codes and rules, [whereas] the CIO limits complaints to the Privacy Act, thereby lessening the scope for accepting disputes.”

Veda said other credit reporting bodies – Dun & Bradstreet and Experian – were with CIO.

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“The best outcome is to have a body that understands the complexities of the Privacy Act, the differences between a [credit reporting bureau] and a financial service provider, and arrives at fair and lawful decisions,” Veda’s spokeswoman said.

“Veda now has a number of commercial disputes before [CIO and] we are confident based on their experience … they will arrive at decisions that are both fair and lawful.”

But the credit repair company raising concerns claimed Veda was driven by its bottom line because CIO was likely to accept fewer disputes, saving Veda money.

It claimed that unlike FOS, which accepted disputes based on Veda’s own subscriber rules, CIO was unlikely to accept complaints about commercial credit (for business, not personal purposes) because this did not fall under the Privacy Act.

“This means a vital protection for commercial borrowers has been lost, and commercial credit providers can literally slap on a default notice of any amount over $100 with no notice, no contact, no delay, and no Ombudsman service to hold Veda accountable,” she said.

Credit repair agents charge a fee to resolve default listings, and fewer opportunities to lodge a dispute would also hurt their bottom line.

Veda has previously complained that credit repair groups were misusing FOS’ services by automatically disputing every entry on their client’s credit report without regard to whether or not the information was accurate.

The independent Ramsay Review is currently examining dispute resolution and complaints bodies in the financial sector and it recently made a draft recommendation that FOS and CIO be merged.

FOS wants to merge, while CIO believes two schemes allow price competition and service quality comparison.

In 2015-16, FOS had about 13,600 members, including the big four banks and insurers. Seventy-eight per cent were “small” or “very small” businesses.

In the same period, CIO had about 23,000 members, 97 per cent of which were sole traders, partnerships or small businesses. Most are brokers.

Raj Venga, CIO’s chief executive, said its funding model better allowed credit reporting members to respond to the threat of “unscrupulous” operators lodging baseless claims that attack the validity of default listings.

He denied claims that CIO would accept fewer complaints because of a smaller scope.

“We consider complaints by reference not only to the law, but also to applicable industry codes, good industry practice and fairness,” he said. “We can, and do, deal with complaints from commercial borrowers and business owners.”

A joint submission by consumer groups supported the idea of a single scheme. It said there were concerns about delays at CIO, its “hands off approach”, and “at times, poor quality decision-making”.

“These problems undermine its effectiveness and cause consumer detriment,” the joint submission reads.

“Consumer Action reports that, in some disputes, clients achieve a faster and better outcome by taking their dispute to court instead of CIO.”

However, it also listed problems about FOS.

A survey by Financial Counselling Australia found more counsellors had positive experiences with FOS than CIO, and rated their experiences with FOS more highly than CIO.

Alexandra Kelly from the Financial Rights Legal Centre said her main concern about the move was FOS published every decision on their website while CIO published a few.

Fiona Guthrie of Financial Counselling Australia said she hoped there will be no differences in the way in which FOS and CIO determine disputes.

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www.australianmortgageloans.com

Henry Sapiecha

The importance of your personal credit report

Understanding what information is held on a consumer’s credit report can provide a pathway for negotiating better credit terms, whether or not a person has a strong credit history.

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In March 2014, changes were made to Australia’s credit reporting system, paving the way towards the introduction of comprehensive credit reporting (CCR). It is important for everyone to understand what impact the information on their credit report may have on their financial situation.

Based on interactions with the negative reporting system, many financial professionals consider credit reporting of relevance to a niche market. Clients seen as more financially literate or well-off, and therefore unlikely to have damaging information on their credit report, are often overlooked when it comes to credit education.

Credit reporting is relevant to everyone

With the introduction of CCR, understanding the system will become more important than ever for all Australians. Credit reports will progressively include a wider range of information about a consumer’s credit products and whether payments are being made on time, as well as the negative information which was previously available.

Traditionally, most consumers in Australia only became aware of their credit record when they were declined credit, perhaps because of a default on their credit report. Based on overseas experiences, such as in the US, UK and South America, we expect this to change. We anticipate that consumers will increasingly see the new credit reports, and potentially their credit scores, as evidence of good personal financial management. They may also be used as a tool to seek out better interest rates and terms with lenders.

Financial professionals, including planners and accountants, are in an ideal position to help consumers understand and take control of their credit reports, so that when they need credit, their creditworthiness is assessed accurately.

Key rights under Australian law include:

  1. The right to a free copy of your credit report annually from each of the credit reporting bodies. If a credit application is rejected, you are entitled to request another free credit report.
  2. The right to challenge and fix errors on your report, which credit providers and credit reporting bodies must investigate and correct free of charge.
  3. The right to escalate a complaint to an external dispute resolution service such as the Credit and Insurance Ombudsman or the Financial Ombudsman Service if unsatisfied with the investigation.
  4. The right to have a ban placed on your credit file to protect the credit file being accessed in cases of suspected identity theft.

Good reports can lead to better outcomes

Understanding what information is held on a consumer’s credit report can provide a pathway for negotiating better payment or credit terms, or allow financial advisers to provide advice about what steps a client can take to improve their payment behaviour.

From a business productivity perspective, richer data may also result in higher approvals and easier loan take-up, due to more efficient and accurate matching of the right finance offer for each client. The reforms are designed to improve not only the credit reporting system and the availability of credit to rehabilitated borrowers, but also Australia’s overall financial stability through prudent risk assessment.

About the author
Damian Paull is Chief Executive of ARCA, the peak body for retail credit providers and credit reporting bodies. For industry, ARCA hosts a number of events and seminars, and for consumers, there is an educational website at www.creditsmart.org.au.
WATER FEATURE AUCTION TRADER RED WHITE BLUE GENERIC BANNER
Henry Sapiecha

Default looms for millions of Australians with credit ratings being poor

australia map showing areas of loan defaults image www.moneuy-au.com

Caesar says consumers will be able to use their credit scores to seek out better deals from lenders.

More than 2 million people, or 13 per cent of the estimated 16 million Australians using credit, are at risk of credit default.

That includes about 600,000 people who are at “high to extreme risk” of defaulting, an analysis of credit records by credit agency Veda shows.

The analysis comes from extrapolation of almost 1 million “VedaScores”, which is a number up to 1200 that summarises an individual’s credit record

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Under the new regime, credit reports will note any missed payments of more than 14 days.

The national average VedaScore is 760 and a score of 200 means the person has a 50 per cent chance of having an “adverse credit event” within the next 12 months.

Credit agencies are starting to collect more information since the start of the new credit reporting regime in March this year.

Before the change, credit reports, which credit agencies provide to lenders when they check on applicants, held only negative information, such as missed payments of more than 60 days and bankruptcies.

Under the new, comprehensive reporting regime, monthly payment histories on loans and credit cards will be shown and reports will note any missed payments of more than 14 days.

In the United States, which has had comprehensive reporting for years, as have most developed countries, lenders often use the credit score, alongside other factors such as income, employment history and financial commitments, to assess loan applicants.

Americans with poor credit records can pay higher rates of interest when taking out a new mortgage than those with good records.

The credit agencies that lobbied for comprehensive reporting in Australia, which included Veda, say the inclusion of repayment history on credit reports, for example, will help people with poor credit histories show lenders that they have changed their ways.

That was much harder under the old regime. In June this year, lender SocietyOne became the first to publicly declare it was using “risk-based pricing” for loan applicants.

The lender differs from most others in that it does not lend the money itself, but sources money from private and institutional investors.

As a new lender, SocietyOne has only one consumer credit product available: an unsecured personal loan for amounts of between $5000 and $30,000 for a term of up to three years.

Borrowers who are assessed as A-rated – those with the best credit scores – are offered the lowest interest rate while those with lower classifications pay higher interest rates.

Veda chief executive Nerida Caesar says the development of more sophisticated technology, which allows easier credit checking together with comprehensive credit reporting, makes it inevitable that more lenders will move to risk-based pricing.

It could be the second-tier lenders in Australia and the local operations of overseas banks that are the first to offer risk-based pricing, she says.

Caesar says consumers will be able to use their credit scores to seek out better deals from lenders.

Veda’s analysis shows the state carrying the highest proportion of residents at risk of default in the next 12 months is Queensland at 16 per cent, while ACT has the smallest proportion at risk at 10 per cent.

In NSW and Victoria, the risk of default is 13 per cent.

The analysis also shows that those aged in their 30s and 40s have the highest risk of default over the next 12 months.

People in their mid and late 30s and 40s have young families and are often under financial pressure, which is the most likely explanation for their higher risk of default than other age cohorts.

The Veda research shows women have better average scores than men. The research also shows that almost 80 per cent of people have never checked their credit report.

Consumers can obtain a copy of their credit reports once a year for free from credit agencies.

Henry Sapiecha
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SocietyOne web site hands credit scores power to Australian customers on line

SocietyOne chief executive Mike Symons image www.money-au.com

SocietyOne chief executive Mike Symons is taking on the banks. Photo: MIchel O’Sullivan

“There is a carrot here, in that becoming more aware about your credit score gives you more information, which is power,” said Matt Symons, chief executive of SocietyOne. The P2P lender has been looking to attract high quality borrowers onto its internet-based matching platform, which reduces the risk for investors in the loans.

“The score arms a borrower to go and discover the price for a debt consolidation loan from SocietyOne or others using a risk-based pricing approach,” he said. “They could also go to their bank and say ‘Why am I paying this egregious interest rate when other lenders are offering me a better price?'”

With risk-based pricing of credit lying at the heart of the P2P lending business model, banks are fretting about the potential for P2P to cherry pick the highest quality risks out of their lending books. Increased transparency about credit scores is also an uncomfortable development for banks, which have not embraced comprehensive credit reporting given the threat of disintermediation.

Banks have been refusing to provide positive customer data into the comprehensive reporting regime (the legislation does not force them to do so), undermining its effectiveness.

SocietyOne asked the financial system inquiry being chaired by David Murray to recommend the federal government take further steps to reduce asymmetric credit data favouring the incumbents to enabling more competition. It suggested in a submission to the inquiry that positive reporting be made mandatory for all credit providers, and increasing the scope of the data collected.

Despite the arrival of comprehensive credit reporting in Australia, a culture of borrowers understanding how their credit history might impact on interest rates has failed to develop, in contrast with the United States where the “FICO score” is used widely.Information at fingertips

“Hopefully, there is a groundswell that can be built around people wanting access to their credit data, putting the same information available to banks at their finger tips, so the power shifts back to the consumer,” Mr Symons said. “If other international precedents are followed here, it is inevitable SocietyOne will be joined by others launching risk-based pricing into consumer and SME [lending] markets, and as that starts to happen, people will have options not historically available to them.” Westpac Banking Corporation holds a small equity stake in SocietyOne through its venture capital fund, Reinventure Group, which invested $5 million in the company in March.

GetCreditScore.com.au has been designed as a stand-alone entity from SocietyOne for regulatory reasons and will operate on its own platform with no data sharing with the P2P lender.

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Banks have been warned that high-credit quality customers will be encouraged to negotiate lower interest rates on their loans with borrowers able to access their credit scores for free from Tuesday on a new website backed by peer-to-peer lender SocietyOne.

The comprehensive credit reporting regime has increased the quality of information held by credit bureaus such as Veda Group, which charges for credit scores that have typically been sought by borrowers who have been rejected for credit. The launch of GetCreditScore.com.au will now allow borrowers to access their credit score at a point in time (after providing identity information) without having to pay a fee.

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Mr Symons said he was not able to comment about recent reports in The Australian Financial Review that high-profile investors including Kerry Stokes, James Packer and Lachlan Murdoch are considering investing in SocietyOne. Nor would he put a number on the company’s current loan book, but said it was “tracking well” and had “good momentum”.

Publicly-listed Veda is supportive of the move towards creating greater awareness about credit scores and how they influence consumers’ ability to both get credit and seek out the best deal.

GetCreditScore.com.au is using VedaScores. Veda offers comprehensive credit services including credit reports, tracking credit scores over time, analysis of how a score is determined, and alerts. Dun & Bradstreet also offers credit products.

Henry Sapiecha

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