Trust only the experts on credit files

Sydney law firm Joseph Trimarchi & Associates specialises in credit repair. Principal Joseph Trimarchi warns brokers to be wary of companies offering credit-fix solutions that sound far too good to be true.

Much has been written about credit repair or credit restoration, and finance professionals are constantly bombarded by companies promising magic-bullet solutions to restoring their clients’ creditworthiness.

The truth is, these offerings are mostly all hype and do little to provide a proper understanding of what types of blemishes can be removed from credit files.

By definition, credit repair or credit restoration is the process of legally challenging negative or adverse information appearing on a credit file. The credit file is an insight into creditworthiness and is governed by strict compliance with the prevailing legislation – the Privacy Act 1988 (Commonwealth).

Australian law does little to assist with non-consumer credit. This is credit that is not obtained for personal, domestic or household reasons. Adverse listings for commercial credit present a more difficult prospect when attempting to erase this information.

The fact is, not all listings can be erased from a credit file; only inaccurate or incorrect information may be removed. Australia has three main credit reporting agencies: Equifax, Experian and illion. Remarkably, these agencies do not share information, which means different information may appear in each credit report provided by these agencies.

My practice encounters this problem daily, and my team constantly urge clients and finance professionals to check all three credit files to establish what information is held by them that may affect their clients’ creditworthiness. Information can remain on a credit file for many years, and any negative information, such as defaults or judgments, will affect creditworthiness for years to come.

How long is information held on a credit file?

• Bankruptcy: Five years from the day you are declared bankrupt; or two years from the day you are no longer bankrupt
• Court judgment: Five years
• Credit enquiry: Five years
• Consumer credit obligations: Two years from the end of the obligation
• Debt agreement: Five years from the day the agreement was made; or two years from the day the agreement was either terminated or ends
• Default: Five years
• Repayment history: Two years
• Serious credit infringement: Seven years

Creditworthiness is key when it comes to determining a successful finance application. It is made up of three important factors each lender is obliged to consider as part of the loan approval process: eligibility to obtain credit, credit history, and capacity to repay the credit.

A good credit history is a key factor and sometimes the only one that individuals can control. Finance professionals owe it to their clients to educate them on creditworthiness, as prevention is always better than cure. A large proportion of the negative information on a credit file can’t be removed.

Tips for maintaining a healthy credit score

• Keep all repayments on current loans up to date and meet all financial obligations, including paying utility and phone bills on time.
• Limit your number of loan applications.
• Keep liabilities to a minimum as lenders take this into consideration when looking at serviceability.
• Try to present a stable pattern of employment and residential address. The rule of thumb is that three or more years working and residing at the same place is sufficient.
• Accumulate assets, preferably real estate. However, other assets such as shares are also considered as positive.
• Minimise the impact of external factors. If the economy is struggling, hold off on applying for credit until it turns around.
• Before applying for credit, understand each lender’s specific requirements. Brokers should not formally submit a client’s application for finance until it has been assessed on its merits.
• Keep enquiry ‘footprints’ on your credit file to a minimum. Be careful when making an enquiry for finance on the internet that may lead to an application being lodged with an institution. Numerous applications may lead to future finance applications being rejected.

The ability to identify negative information that can be removed from a credit file requires an understanding of the laws that govern this area, as well as how they can be applied to advance a client’s individual circumstances. Unfortunately, the credit repair industry is littered with organisations that have little understanding of the law. Referring a client to an organisation in this category is a disservice to them and a poor reflection on the referrer.

Finance professionals must have at least a basic understanding of all factors that may impact their client’s ability to secure finance, especially a credit file that presents their client in the best light.

If a credit file problem arises, professionals would should use a legal firm that specialises in credit file restoration, understands this area of the law, and charges fees on a no-win, no-fee basis.