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Brokers are often the first port of call when consumers have problems getting credit. The majority of consumers first become aware of their credit record when they apply for a loan through a broker. Even the MFAA prefers the term ‘credit adviser’ to the more popular term ‘mortgage broker’.
The title ‘credit adviser’ recognises the important role brokers play in both helping and educating their clients around accessing credit and managing indebtedness, as well as helping with more general questions and issues in personal banking, accounting, tax and investment.
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Earlier this year, a number of changes were made to Australia’s credit reporting system, which has paved the way towards comprehensive credit reporting. These changes ultimately mean that credit reports will soon give a much more complete and clear picture of a consumer’s ability to repay debts. They also provide consumers with more control over the information contained in their credit report (particularly in addressing errors), and have seen the introduction of new safeguards around the privacy of credit reports.
While the reforms are designed to make credit reporting a transparent and accessible process, it is fair to say there is still an element of confusion for many consumers around the difference between the old and new system, as well as a few misunderstandings which could be creating unnecessary financial stress. To address any confusion among consumers (or brokers!) we have developed CreditSmart, an unbiased educational website which outlines the changes and what they mean for consumers.
While ASIC is also busy rolling out its new National Financial Literacy Strategy, we hope brokers will join us in helping to empower consumers to be more aware and in control of their credit reports.
Here are the top four most common consumer myths about comprehensive credit reporting:
Myth #1: “My credit report will show a default or ‘black mark’ if I pay my bills late”
In truth, only payments over 14 days late will be recorded as ‘late payments’, which are much less serious than ‘defaults’. These ‘late payments’ on a credit report can only be recorded for consumer credit products such as credit cards, personal loans, auto finance and mortgages, not for telecommunications and utilities accounts. A default can only be recorded for a payment which is over 60 days overdue, for a debt over $150, and where written notifications have been sent.
Myth #2: “I don’t need to check my credit report because I pay my accounts on time”
Even if you pay all your accounts and bills on time and don’t have any outstanding debt, you should check your credit report annually to make sure there are no errors and that you haven’t been a victim of identity theft.
Myth #3: “I need to pay someone to fix or repair my credit report”
Fortunately, this is false. Free help is available from credit reporting bodies, your credit provider, financial counsellors, ombudsmen, or community legal services. In the new credit reporting system, new consumer rights mean it is easier to get errors fixed yourself, for free.
Myth #4: “Too many credit enquiries can have a negative effect on my credit report”
Rest assured, checking your credit report has no impact on your credit history. Your credit report may show where an enquiry led to a grant of credit, which may give credit providers a clearer picture of your current credit accounts.
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