Month: March 2021

Negative entries can have a serious impact on your credit score. If you want to know how to remove negative entries from your credit report then we’ve got the breakdown below.

What is a negative entry on your credit report?

A negative entry is some kind of information on your credit report that lowers your credit score. The term negative entry encases any bad financial behaviour that indicates that you haven’t effectively managed your debt. 

Examples of negative entries include:

• Late payments on loans or credit cards;
• Delinquent accounts;
• Charge offs;
• Bankruptcies;
• Accounts that have been sent to collection;
• Foreclosures.

Therefore, if you’ve ever defaulted on a repayment for some kind of credit, say your personal loan, then that will be listed on your credit report. This is classified as a negative entry and would have lowered your credit score when it was first added.

How long do negative entries stay on your credit report?

The length of time a negative entry will remain on your credit report depends on what the negative entry is. Here’s an overview:

How do negative entries affect your credit score?

To put it simply, negative entries on your credit report will negatively affect your credit score. When the negative entry is first put on your report, your credit rating will fall. By how much depends on the credit bureau and what kind of negative entry it is. See one of our latest articles for an overview of how your credit score is calculated.

If you show consistent negative credit behaviour, such as continuously defaulting on payments, going into bankruptcy, etc., then your credit score will continue to suffer. However, if you have only one negative entry on your credit report, and since then, you have only displayed positive behaviour through your credit history and continue to do so, then your score might recover, or only be affected minimally. 

According to Equifax, one of the main credit reporting bodies in Australia: “It is unlikely one late payment, depending upon how late the payment was, followed by making your repayments on time, will significantly impact your credit score, however, several late payments could be an indication you are in financial stress and may negatively impact your credit score.”

How to remove negative entries from your credit report?

Now you know what negative entries are, and how long they stay on your credit report, let’s answer the question “how can you remove negative entries from your credit report”. 

The answer to this question has a couple of layers, and it all boils down to – is the information correct, or is it incorrect? 

If the information is correct

As highlighted by MoneySmart, if the information is correct, even if it is negative and harms your credit score, then you can’t remove it from your report. Instead, you’ll have to wait 5-7 years for the negative information to leave your credit report naturally.

If there has been a mistake

If there has been some kind of mistake then you should be able to remove it. If you notice a negative entry on your credit report that you don’t recognise or is incorrect, the first thing you should do is reach out to the relevant credit provider. 

If they find that there has been some kind of error on their side, then they should rectify the mistake with the relevant credit reporting agencies, and it will be removed from your credit report. It’s a good idea to keep a close eye on your report to make sure they do remove the negative entry on your credit report.

Whilst this is the general rule, there are nuances for each negative entry. Let’s take a closer look, and see what requirements need to be met so you can remove negative entries from your credit report.

Defaults on your credit report

A default is when your credit or loan repayment has been overdue for at least 60 days, or the overdue payment is equal to or more than $150. According to the Office of the Australian Information Commissioner (OAIC), for a default to be listed on your credit report, the provider that you owe money to must have sent you a notice to your last known address to inform you of the overdue payment and request payment.

Then, the provider must send you a second notice at least 30 days later to inform you that if you don’t make the payment, then they will disclose it to a credit reporting body.

Once this second notice has been sent, the provider then has to way at least 14 days after issuing the second notice before informing a credit reporting body of your default. Furthermore, the OAIC highlights that the credit provider can’t wait more than 3 months after issuing you with the second notice to list the default.

“If a credit provider mistakenly sent the notices to an old address that was not your last known address then the default listing may not be valid. However, if they sent the notices to an old address because you failed to update your contact details then the credit provider is likely to have met the notice requirements,” the OAIC highlights.

How to remove defaults from your credit report

After a default has been listed on your credit report, it will remain for 5 years. If you pay the overdue amount after your credit provider has listed the default, then the listing will remain on your credit report, but the status will be updated to reflect that the payment was made.

If you want to remove the default from your credit report, the only way you can do that is if the default is not valid. If you can prove that there has been some kind of mistake, or that the credit provider has sent your notices mistakenly to an incorrect address, then the default might not be valid.

However, if the credit provider sent the notices to an old address because you didn’t update your contact details, then according to the OAIC, the credit provider is likely to have met the requirements and the default is valid.

If you can prove that the default is somehow invalid, you can get it removed from your report. If you can’t and the default is valid, then it will remain on your credit report for up to 5 years.

How do defaults affect my credit score?

If you do end up having a default on your credit report, how will it affect your credit score? Equifax outlines that a default on your report will negatively impact your credit score.

“If you have a default on your credit report you can lessen the impact of the default on your score by making repayments on time. This more recent good behaviour can help improve your score.” 

Bankruptcies and court judgements

In Australia, bankruptcy normally lasts for 3 years and 1 day, although it is possible to get out of bankruptcy earlier. As highlighted by the Australian Financial Security Authority (AFSA) your credit report will continue to show your bankruptcy for either:

• 2 years from when your bankruptcy ends or
• 5 years from the date you became bankrupt (whichever is later).

The Consumer Action Law Centre, an advocacy organisation, outlines that for a bankruptcy or court judgement to be removed from your credit report, then you would need to have the public record details changed to have the listing removed from your credit report.

“Credit reporting agencies obtain court judgment and bankruptcy information directly from the Courts and the Australian Financial Security Authority records. This might involve having the court judgment set aside,” the organisation states.

As was the same with defaults, you can only have bankruptcies and court judgements removed from your credit report if they are inaccurate.

How does bankruptcy affect your credit score?

Like all negative entries, the question of how does bankruptcy affect your credit score is complicated. This is because the exact formula credit bureaus use to calculate your credit score varies between each of them, and only some information is public knowledge.

However, what we do know is that going into bankruptcy will harm your credit score. This is because it sends a clear signal to credit providers that you couldn’t effectively manage your debt and you have a high risk of defaulting on your repayments.

Protect your credit score

As the saying goes, prevention is better than cure. If you want to avoid having negative entries on your credit report, then the best thing you can do is avoid defaulting on payments, serious credit infringements, court judgements and bankruptcies.

In some cases, this is easier said than done. Sometimes life can throw you a curveball. Because of that, here are some things you could try to help you stay on the right path:

• Create a budget and limit your spending to only what you can afford;
• Set up an emergency fund to cover unexpected expenses;
• Only borrow what you can afford;
• Set up automatic payments so you don’t miss any repayments;
• Make sure your contact information, including your email and address, is updated with any companies that you have a loan or credit card with.

Keep an eye on your credit report

Another thing you can do to protect your credit score is to keep an eye on your credit report. 1 in 5 credit reports has some kind of mistake on it. These mistakes can often harm your credit report. 

If you regularly check your credit report, then you might be able to spot a mistake straight away and have it removed from your credit report. The quicker you notice and remove the mistake, the less damage it can do to your credit score and financial wellbeing.

There are a number of reasons why someone might have to enter into bankruptcy. But how can bankruptcy affect your credit score and how long does bankruptcy stay on your credit report? We’ve put together a helpful guide to give you all the facts.

What is bankruptcy?

Bankruptcy is the legal process when someone is declared unable to repay their debts. The point of bankruptcy is to allow the individual to be released from most of their debts, allowing them to make a fresh start. 

As highlighted by the Australian Financial Security Authority (AFSA): “You can enter into voluntary bankruptcy. To do this you need to complete and submit a Bankruptcy Form. It’s also possible that someone you owe money to (a creditor) can make you bankrupt through a court process. We refer to this as a sequestration order.”

Bankruptcy normally lasts for 3 years and 1 day. However, it is possible to end your bankruptcy earlier if you repay your debts faster.

Different types of bankruptcy

In Australia, if you get into debt and you’re unable to repay it, then there are three formal options available for you – bankruptcy, personal insolvency agreements and debt agreements. We’ve already outlined what bankruptcy is, so let’s cover personal insolvency and debt agreements.

Personal insolvency agreements

A personal insolvency agreement, also known as Part X (10), is a step you can take to avoid declaring bankruptcy. It’s a legally binding agreement between yourself and your creditors and can be used as a way to settle your debts with creditors without going into bankruptcy.

When you enter into a Part X agreement, a trustee will be appointed to manage your finances and make an offer to the creditors you owe money to on your behalf. As part of this agreement, you might have to pay all or part of your debt in either a lump sum or in instalments – depending on what you can afford.

Debt agreements

Debt agreements are similar to personal insolvencies in that it is a way to avoid bankruptcy. Also referred to as a Part IX (9) debt agreement, this type of agreement allows you to reach an arrangement with the creditors you owe money too so you can settle your debts without having to resort to bankruptcy.

Here’s how it works. When you enter into a debt agreement, you’ll be appointed an administrator, who will negotiate with creditors to pay back part of your combined debt. This will be as much as you can afford based on your current financial situation across an agreed period of time. 

When you have completed your debt agreement, then you won’t have to pay back the remaining debt that you owe.

Bankruptcy in Australia

As we highlighted in a previous article, during the 2019 – 2020 financial year, figures from the AFSA highlighted that the number of new personal insolvency agreements, bankruptcies and debt agreements entered was lower year-on-year.

In Australia, you are able to apply for bankruptcy if you meet the following two requirements:

• You’re unable to pay your debts when they are due (insolvent) and;
• You’re present in Australia or have a residential or business connection to Australia.

There’s no cost for entering bankruptcy and, according to the AFSA, there’s no minimum or maximum amount of debt or income needed to be eligible.

How does bankruptcy affect your credit score?

A lot of people want to know how bankruptcy affects their credit score. Unfortunately, there’s no precise answer, as the credit bureaus like to keep the exact algorithms they use to calculate your credit score a well-guarded secret.

However, we do know that if you’re declared bankrupt, it won’t be good for your credit score. This is because it sends a clear signal to creditors that you aren’t able to effectively manage your debt. 

Therefore, you can expect that if you go into bankruptcy your credit score will take a significant hit. It will likely take years for your score to recover.

How long does bankruptcy stay on your credit report?

So let’s answer the main question of this article – how long does bankruptcy stay on your credit report?

According to the AFSA, your credit report will show your bankruptcy for either:

2 years from when your bankruptcy ends or;

5 years from the date you became bankrupt (whichever is later).

The AFSA further outlines that bankruptcy will remain on your credit file for a maximum of 5 years if your bankruptcy period lasts for 3 years and 1 day. When you have completed your bankruptcy, the status will change on your report to “discharged”. Although the status will change, the bankruptcy will still remain on your report for a further 2 years.

How to avoid bankruptcy

Now that you have a better idea of the impact of bankruptcy, let’s see how you could avoid filing for bankruptcy in the first place.

Know where you’re at

Before you can take steps to reduce your debt, you need to first know where you’re at. MoneySmart recommends that you make a list of all your debts and show how much each debt is and the minimum monthly repayment if applicable. 

Specifically, the financial education website advises individuals to include credit cards, loan repayments, unpaid bills, fines and any other money you owe. Once you have created the list, add up all the debt that you owe. Once you’ve done this, you’ll have a clearer idea of how much debt you’re in.

Pay what you can

Once you have an idea of how much you owe, the next step is to figure out how much you can repay. You could do this by creating a budget that outlines your monthly expenses, and determine how much money you have leftover after all of your bills are paid. With what’s leftover, you can dedicate some of that to paying your bills. 

Extra tip: reduce your spending

When you take a look at all of your bills, you could try and see what things you could cut. Say you have multiple subscriptions to streaming services, you could reduce that to just one server. Are you eating out a lot? Why not cook at home? There are many things you could do to reduce your spending.

Reduce your debt

When you’re paying back your debts, you could try to reduce your debt at the same time. There are two common methods you could use to achieve this – the avalanche and snowball method.

The snowball system is when you make the minimum payments to all of your debts, except for your smallest, which increases your payments above the minimum requirement. The goal of the snowball system is to pay off your smallest debt as quickly as possible. Once that’s paid off, you move onto the next smallest debt, and so the cycle continues.

The avalanche system has a slightly different approach. Instead of focusing on the smallest debt, you instead focus on the debt with the highest interest rate. Your aim is to dedicate more funds to your debt with the highest interest rate to try and pay it off faster, whilst making the minimum repayments on your other debts.

Once you’ve paid off this debt, then you focus on the next debt that has the highest interest rate. Like the snowball system, you continue with this method until you’ve paid off all of your debt.

Reach out for help when you first notice the problem

To stop your debt from getting out of hand, when you first notice a problem, you should reach out for help. In Australia, you can reach out to a financial counsellor for free, and they can offer you independent and confidential services to help you get back on track.

If you are currently struggling with debt, you can speak with a financial counsellor through the National Debt Hotline on 1800 007 007. Alternatively, you can head to the National Debt Helpline website for more tools and resources.

Check your credit report

Another way you can help avoid having to declare bankruptcy is by frequently checking your credit report to examine your credit history. With Tippla, you can clearly see all of your credit, including your limits, listed on your credit report. This can provide you with an easy overview of your credit situation.

How long does bankruptcy stay on your credit report?

To answer the question of how long does bankruptcy stay on your credit report, the answer is around 5 years if you complete your bankruptcy in the standard 3 years and 1-day timeframe. If you complete your bankruptcy earlier, then it’s 2 years after you’ve finished.

Although bankruptcy won’t stay on your credit report forever, it is worth highlighting that you will be put on the public register called the NPII. Your name will appear on the NPII permanently. It shows details of insolvency proceedings such as bankruptcy in the country.

We get asked the question “why are my credit scores different” a lot here at Tippla. There’s a lot of concern that having two different scores is a bad thing, but we’re here to shine a light on why your credit ratings might be different and what it means.

What is a credit score?

A credit score is a numerical representation of your creditworthiness and how reliable of a borrower you are. Your credit score falls on a scale ranging from 0 – 1,200. Your credit score will generally fall on a five-point scale – below average, average, good, very good and excellent. 

The higher your credit score, the better. This is because a high credit score indicates that you are a reliable borrower and likely to repay your debt. This is what credit providers care about the most when reviewing your application – can you pay them back?

In Australia, your credit rating is calculated by three credit reporting agencies – Equifax, Experian and illion. This means you have not one, but three credit scores in Australia. Your credit score is based on your credit report. 

What goes onto your credit report? Here’s a breakdown. Your credit report outlines your credit history, including all of your credit accounts, your repayment history, any credit applications you’ve made recently, and more. 

Sometimes your credit scores and credit reports might be different across the three bureaus. This isn’t necessarily a bad thing. Let’s find out why.

Why are my credit scores different? 

There are three main reasons why your credit scores might be different.

Equifax, Experian and illion use different scales 

As we mentioned above, your credit score is a number ranging from 0 – 1,200. However, they don’t all use the same scale. Your Equifax credit score will be a number falling somewhere between 0 – 1,200. 

The higher your credit rating, the better. Your Experian and illion credit score, however, is based on a scale ranging from 0 – 1,000. Because your Equifax credit score is based on a different scale, then it’s more likely that your Equifax credit score will be different from your Experian and illion credit scores.

In addition, Equifax, Experian and illion all classify your credit scores differently. For example, a good credit score for Equifax is 622 – 725. Anything less than this is either average or below average. Experian, on the other hand, classifies 625 – 699 as a good credit score, and illion categorises a score falling between 700 – 799 as good.

They use different algorithms to calculate your credit score

As Tippla recently covered, the different credit bureaus all use different algorithms to calculate your credit score. Exactly how they do that is a well-kept secret, but we do know a few things. 

Namely, Equifax, Experian and illion all place an emphasis on your repayment history. Do you make your credit repayments on time, have you ever defaulted on a repayment? This is what the credit bureaus particularly look out for. 

Other things the credit bureaus look out for are:

• How many credit accounts you have;
• How many credit applications you’ve made in the past five years;
• Court judgements;
• Bankruptcies;
• Serious credit infringements.

The credit bureaus determine what counts the most towards your score, and how much weight each of these items have. This is why you might have a different score across the three bureaus.

Not all lenders and banks report to all credit bureaus

Your credit score is based on your credit history outlined in your credit reports with the three reporting agencies. Each month, credit providers such as banks, lenders and utility providers, report to the credit reporting agencies. However, they don’t necessarily report to each one. 

Say you have a credit card with a bank. Each month that bank might only send information on your repayment and credit activity for the month to Equifax and not the other two bureaus. Therefore, when Equifax is calculating your score, it is considering all of the information provided to it by your bank, alongside any other information it might get from other companies you have credit accounts with. 

However, because Experian and illion aren’t getting this information each month, it isn’t being factored into your score. If you have good credit behaviour, then this might not be contributing to all your credit scores. On the other side, if you have a bad credit history, it might not affect all your credit scores.

Did you know: sometimes you might only have one or two credit scores

If you have a credit history, then you’ll likely have three separate credit scores with each of the credit reporting agencies. However, this isn’t always the case. If you only have one type of credit or minimal credit activity, then you might actually not have a credit score with all three. 

Think of it like this. Let’s go back to the same situation as earlier – you have a credit card with a bank. That bank only reports your credit information to Equifax. That means Experian and illion aren’t getting that credit information. 

Now, say that’s the only credit you have – you’ve never taken out a loan, and you don’t have any utilities in your name. Besides this credit card, you don’t have any credit information, and Experian and illion aren’t getting that information. To these two credit reporting agencies – you don’t have any credit history. 

Your credit report would be blank and, therefore, you don’t have a credit score. This is why sometimes you can have a credit score with one of the reporting agencies, but not with all three.

Why are my credit scores different?

To sum this up, there are three main reasons why your credit score might be different across Equifax, Experian and illion. These are:

1. Equifax uses a different scale than Experian and illion;
2. They all use different algorithms to calculate your score;
3. Not all credit providers report your information to all three credit reporting agencies.

Whilst these are the three main reasons why your credit scores are different across the three agencies, that doesn’t mean they are the only reason. Another reason, and one you should really look out for, is mistakes on your credit report. 

1 in 5 credit reports has some kind of mistake on them. This could include the wrong address, incorrect or outdated personal information, or sometimes it could be a larger mistake such as a credit account that you don’t actually have. Mistakes can harm your credit score, so it’s important to check your report frequently to make sure all of the information is up to date and correct.