What is a credit check and why is your credit file important?

​When you make a loan application, a lender will always perform a credit check to look at your credit history and determine what sort of borrowing candidate you are. In this blog I hope to breakdown what a credit check is and how the results of your credit file can impact your finance application.

One of the early steps a financial institution takes when they receive a finance application is to do a credit check. Your credit file is stored by credit reporting agencies such as Veda Advantage. Your credit file typically contains the following information:

1. Your personal details – including your full name, gender, date of birth, employment information, current and past addresses and driver's licence

2. Credit history – listing any credit enquiries that you have made, any default notices, infringements or bankruptcy information

3. Other information – any relevant court judgements, debt agreements or personal insolvency agreements will be listed on your report

By law, financial institutions have to add any credit enquires you make to your credit file. For example, if you apply for a credit card, home loan, personal loan or other form of finance, an enquiry will be noted on your file. Similarly, if you have any default notices, your lender has a legal obligation to note this on your credit file. Default or infringements will be listed on your report for five years, and any serious credit infringements or bankruptcies will remain on your report for seven years.

The purpose of conducting a credit check is to ensure that the person applying for credit has a stable finance history. Having any negative financial history or multiple enquiries listed on your file could result in your application being denied because you appear risky.

To ensure that you keep a healthy credit report you should:

1. Do your own research before you start applying for finance. Determine if you are eligible to borrow before you make an enquiry and avoid making a large number of finance applications as these will all be listed on your credit file.

2. Know who you are applying for finance with. Make sure that your application is for one lender, and not being passed onto other financial institutions. As explained in my last blog, you should read the privacy statement of the lender or mortgage broker that you are applying with, as you don’t want your information passed onto multiple lenders, resulting in numerous credit enquiries on your report.

3. Keep on top of your repayments. Pay your repayments on time. Having default notices listed on your credit report can be avoided and if you foresee any issues with your repayments contact your lender and try to work out a payment plan to avoid a default notice being listed on your credit report.

If your application for credit is denied, lenders are obligated by law to tell you if it has been rejected because of something listed on your credit report. In these instances, you are entitled to view your credit report free of charge, to confirm the reason for rejection.

If you would like to pay for a copy of your credit report, you can contact credit collection agency Veda Advantage on 1300 762 207.

If you have any further questions regarding credit checks and the importance of your credit report, please contact us on 13 10 90.

By Marie Mortimer. You can follow Marie on Google+

Image credit: plex

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