On 12 March 2014, the Australian laws for credit reporting (also known as your credit rating) have changed. This change means you will now be assessed on whether you pay your bills on time (rather than if you have occasionally paid them late). Now, more than ever, it is important to effectively manage your household finances.
What credit reporting?
Credit reporting is a rating of your personal finance history. The report is used by banks, lenders or service providers to decide whether or not you are able to pay for their services reliably and what fees they should charge to cover their risk, should you fail to pay. It’s basically how a bank decides whether to approve or deny your mortgage or credit card applications.
What has changed?
Previously, in Australia, we have used ‘negative’ reporting – which means the rating has been based on whether or not you have been denied credit for home loans or credit cards in the past. The problem with this approach is, given rising house prices, people are applying to borrow larger amounts and often need to apply to multiple lenders before being approved for their loan. Hence, they have accumulated negative credit points in the process.
Now, to be in line with the Organisation for Economic Co-operation and Development (OECD), we have started using ‘positive reporting’ – which means the rating is based on whether you have paid your bills on time. It’s probably a truer representation of how financially reliable you are, however, this means that every time you are late paying a bill, you may affect your credit rating. And most of us occasionally fail to pay a bill on time for a multitude of reasons.
To avoid a bad credit rating, make sure you pay your bills on time. A few suggestions to make this easier:
• Set-up scheduled payments or direct debit to pay your regular bills.
• Receive your bills via email rather than post – it’s easy to set payment reminders and create folders to keep track of your finances.
• Use the calendar in your email or on your phone to remind yourself when bills are due.
• Download your bank’s mobile app, so you can pay bills when you are not at home.
If you get into difficulty contact the company immediately and be pro-active with the repayment approach. If you need assistance with exploring your options contact our office.
Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.