Posted on

Is Afterpay Bad For My Credit Score? Here’s a Quick Overview

is afterpay bad for my credit score

With Buy Now Pay Later (BNPL) platforms, especially Afterpay, becoming an increasingly popular payment option, we’re exploring the potential negative effects of Afterpay and answering the question “is Afterpay bad for my credit score?”. Find out the answer below. 

is afterpay bad for my credit score

What is Buy Now Pay Later?

As the name suggests, BNPL platforms allow customers to buy an item now and pay it off later, typically in fortnightly instalments. These type of platforms are useful for people who want to make a big purchase but they might not be able to afford the full amount upfront. It gives them the opportunity to space out the cost over multiple pay periods.

BNPL platforms are similar to the layby system used by many retail stores. However, the difference with BNPL platforms is that they generally pay the retailer for the goods upfront, so the customer can receive them instantly, and then the customer pays the BNPL platform back.

Some of the most common BNPL platforms are Afterpay, Klarna, Zip Co (Zip Pay and Zip Money), Splitit, Sezzle and more.

Buy Now Pay Later in Australia

BNPL platforms have really taken off in Australia, with Afterpay at the forefront of the movement. According to a recent report released by the Australian Securities and Investments Commission (ASIC), the total amount of credit extended under BNPL arrangements almost doubled from the 2017–18 financial year to the 2018–19 financial year.

Specifically, the November 2020 report outlined that as of June 2019, there were more than 6.1 million open BNPL accounts. This represents up to 30% of the Australian adult population.

Not only are a range of new competitors entering into the Australian landscape, but established licensed credit providers have started to offer a BNPL arrangement or alternative. This includes some of the largest banks in Australia – Commonwealth Bank of Australia, National Australia Bank (NAB) and Citigroup.

How does Buy Now Pay Later work?

Say you want a dress for $400, an example of using a BNPL platform is you’d only have to make an initial payment of $100, and over the next 6 weeks, each fortnight you would need to make another payment of $100 until the whole amount has been paid off. 

Many retailers now offer Afterpay, or similar BNPL platforms as a method of payment, as an alternative to paying with cash, debit or credit. Typically, all you need is an account via the app or website to make a transaction. This will be connected to a card or bank account, and the payments are commonly deducted automatically. You can also set up an account when you’re at the retailer, and once you’ve provided all your details, you will often get approval within seconds.

BNPL are similar to a loan, although they generally don’t come with interest, however, there can be fees associated with this kind of payment method, including late fees, overdraft fees from your bank, and interest if your account is connected to a credit card. 

What is Afterpay?

Afterpay is a company established here in Australia in 2015, which operates in Australia, Canada, the United Kingdom, the United States and New Zealand. It is one of the leading Buy Now Pay Later (BNPL) platforms, allowing shoppers to pay for items in instalments, instead of having to pay the full amount upfront.

What are the risks of Afterpay and BNPL?

Afterpay allows you to make interest-free instalment payments for your purchases. According to its website, you’ll only incur fees if your payments are late. Another perk of Afterpay is an “instant approval decision”, where you’re notified whether you’re approved within seconds. 

Whilst this all sounds great, are there risks associated with Afterpay? The simple answer is yes, so let’s take a closer look.

1. Afterpay can encourage impulse spending

Afterpay can be a great tool that allows customers to make larger purchases and break down the payments into more affordable instalments. However, one of the downsides of Afterpay and similar BNPL platforms, is that it can encourage impulse spending.

In fact, BNPL arrangements can actually make us spend more. Mel Browne, Author and Financial Wellness Advocate outlined the dangers of using Afterpay and similar services. As she outlined, the process of using cash causes the insular cortex of our brain to light up and it registers as pain. Credit cards and BNPL services don’t have this same effect, so we’re more likely to spend more.

Specifically, Browne argues that although there are dangers with credit cards, the risks are even greater with BNPL. She explains it like this: say you make a purchase of $100. This will be spread over 4 payments of $25. Your brain is likely to process this as only $25 – not $100. 

Therefore, your brain registers less pain, and you’ll likely end up spending more. This could then lead to you overspending and struggling to make your repayments.

2. Late payment fees

Whilst Afterpay doesn’t charge interest, there are late fees, which can end up costing you. As highlighted above, because of the psychology behind BNPL, you’re more likely to overspend and struggle to make your repayments. Therefore, there is a real risk of incurring late fees.

This was highlighted in ASIC’s report, which showed that 21% of BNPL users who were surveyed missed a payment in the last 12 months. For the 2018-2019, financial year missed payment fee revenue for the BNPL providers in the review exceeded $43 million. This was up by 38% from the previous year.

“One in five consumers surveyed told us that in the last 12 months they had missed or were late paying other bills in order to make their buy now pay later payments on time,” ASIC said in its report. “These consumers missed paying things such as household bills (44%), credit card payments (32%), and home mortgage payments (22%).”

3. You can’t choose your payment schedule

Another downside of Afterpay and other BNPL platforms is that you typically can’t choose when your payments come out. This can increase your risk of overdraft, and incurring late fees from your bank.

4. It can harm your chances of being accepted for a loan

Lending requirements have become a lot more strict in recent years in Australia. Because of this, anecdotes have surfaced of people being rejected for home loans and other types of finance because they had Afterpay or they spent too much money on Uber Eats.

When it comes to Afterpay, lenders still look at this as a line of credit, because you’re borrowing money that you don’t have. If you rely on Afterpay for a lot of expenses, then this indicates to lenders that you’re not responsible with your finances. 

Even if you don’t rely on Afterpay that much, lenders will still take a look at your BNPL spending habits, along with your other debts, to deem how risky of a borrower you are.

How does Afterpay affect my credit score?

Let’s get stuck into the next question – does Afterpay affect your credit score? Here’s what Afterpay has to say about it:

“Afterpay does not affect your credit score or credit rating. Your credit score can be impacted when somebody does a credit check on you or if you are reported as paying debts late; at Afterpay, we never do credit checks or report late payments.”

However, it is worth highlighting, that Afterpay’s Terms & Conditions do give it the authority to perform credit checks and also allow it to report “any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies”.

So what does this mean? Basically, Afterpay doesn’t typically report your late payments or perform credit checks, but that doesn’t mean it won’t. That’s something to keep in mind when considering whether to start using Afterpay.

Other BNPL platforms, like Klarana, do perform a credit check when you use its services. Other platforms, like Zip, humm, Openpay and Payright all say they might perform a credit check, or that they reserve the right to perform a credit check, depending on the platform.

Posted on

What Are The Different Types of Credit Cards?

different types of credit cards

With so many options out there on the market, Tippla has put together a helpful guide on the different types of credit cards.

different types of credit cards

What is a credit card?

A credit card is a revolving line of credit that allows you to purchase goods and services. There are many similarities between a credit card and a loan – you have a set limit you can spend, and you need to pay it back. 

Unlike a loan, the credit limit refreshes each month, and you need to repay the amount each month. If you want to avoid fees and interest, you’ll have to pay back the full amount each month.

Why choose a credit card?

There are several reasons why you might opt for a credit card. Here are five reasons:

1. Flexibility

Because your credit limit refreshes each month, that means you can have access to thousands of dollars each month. This can come in handy if you have unexpected expenses, want to make a big purchase, or use it for your daily spending.

However, it is worth remembering that whatever you spend, you have to pay back. Your credit card limit typically refreshes each month.

2. Building a credit history

Taking on a credit card can allow you to build a positive credit history. If you demonstrate each month that you can use your credit card effectively, and meet your repayments consistently, then this will look good on your credit report. 

However, if you allow your credit card debt to get out of control, then it could have the opposite effect. If you miss your repayments, then this will be displayed as a default on your credit report. Defaults can seriously harm your credit score.

3. Rewards

There are many rewards associated with credit cards. When you spend money, you earn points, which can be redeemed for a range of items – frequent flyer points, cashback, or retail perks, the list goes on and on. If you fly a lot for work, then a rewards credit card might provide a nice bonus. 

However, it’s important to point out that rewards cards often come with higher interest rates and fees. It’s important to weigh the pros and cons to see whether you will get a benefit from a rewards card.

4. Purchase protection

Many credit cards come with purchase protection. This can come in handy if you lose or damage a recent purchase. Typically, you can claim your lost or damaged item on your card’s insurance within 90 days from purchase.

5. Tracking your expenses

You can easily track your expenses when using a credit card. This can be particularly helpful for budgeting and trying to cut down on your monthly spending. With most credit cards, you can easily track your spending through your internet banking or monthly statements. Some banks will even sort your expenses into categories, such as utilities, groceries, eating out, and similar groups.

Different types of credit cards

Now you know some of the reasons why you might want to get a credit card, let’s dive into the different types of credit cards.

Low-interest credit cards A low-interest credit card is a credit card that offers a lower interest rate than normal, which is typically 20%. Low-interest rate credit cards, however, often have an interest rate that’s 14% or lower. 

In addition to having a lower interest rate, these cards can also have no interest periods, typically up to 55 days.

The downside of low-interest credit cards is that they generally come with more restrictions, fewer rewards, and a higher annual fee.
Balance transfer credit cards A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card. 

The benefits of a balance transfer credit card are that they usually come with a low interest rate or even an interest-free period. This gives you the opportunity to repay your debt within the interest-free, or low-interest, period.

If you can’t repay your debt within this period, then it might cost you more in the long run.
No annual fee credit card As the name suggests, a no annual fee credit card is a credit card that doesn’t have an annual fee. There are typically two versions of this card. The first is when you never have to pay an annual fee for the life of the card. The second is when you don’t have to pay the annual fee for an introductory period, which usually spans 1-2 years.

Because you’re not being charged an annual fee, this type of card often comes with a higher interest rate.
Rewards credit card Rewards are a popular type of credit card, as they often give you some kind of reward simply for spending money. The reward is generally given in the form of points which you can use for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points, and petrol rewards.

Like everything in life, nothing comes for free. Rewards credit cards typically come with higher annual fees and interest rates. It can also take a while to build up the points, and they can expire. That’s why it’s beneficial to read the conditions of the rewards and see if they are worth the extra fees and higher interest.
Cashback credit card A cashback credit card is a type of rewards credit card. However, with this specific card type, you can get cash back when you make purchases. 

There’s a couple of ways this can happen, you might get a cash voucher or the money credited back to your account. Similar to rewards credit cards, cash back credit cards usually have higher interest rates and annual fees. Some cards can also cap how many cashback points you can earn.
Platinum or black credit card Platinum or black credit cards are at the upper end of credit cards. They come with a range of benefits including exclusive dining and travel deals, as well as rewards points that don’t expire. 

You can get one of these cards if you’re 18 years or older and your salary exceeds $50,000 a year. The downside of these cards is the higher annual fees and interest rates.

Who provides credit cards?

Let’s tackle the next question – where can you get a credit card? Gone are the days when banks are the only institution that offers credit cards. Here is a range of companies and financial institutions that offer credit cards:

  • Australian and international banks;
  • Financial institutions, 
  • Airlines, such as Qantas and Virgin;
  • Supermarket chains, such as Woolworths and Coles;
  • Visa and Mastercard;
  • eCommerce companies like Kogan;
  • Department stores, including David Jones.

What credit card is right for me?

In Australia, there are so many credit card options available for you to choose from. It can be overwhelming when trying to decide what credit card is the right fit for you. To help you on your journey, we have listed a couple of questions you should ask yourself when making your decision.

  1. What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
  2. Will I be able to pay off my credit card in full each month?
  3. Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
  4. Do I travel a lot?
  5. Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
  6. Do I need a credit card, and can I afford it? Do I already have a lot of debt?
  7. Will a credit card help or harm my credit score?

Before you apply for a credit card

Taking on a credit card can be a big decision. Before applying for a credit card you should make sure that you can afford to make the repayments, that you understand how to use a credit card effectively, and you can handle your debt responsibly. 

It is easy for credit card debt to spiral out of control, so you should do your research and budget before taking on the responsibility. If you are ever unsure, you can speak to a financial counsellor for free to see if taking on a credit card is the right financial choice for you.

Posted on

Is Debt Consolidation Right For You?

debt consolidation

Is debt consolidation right for you? There are a few things you need to consider before opting for debt consolidation or refinancing. Tippla has provided you with an easy guide below.

debt consolidation

What is debt consolidation?

Let’s start first with the most important question – what is debt consolidation? Put simply, it’s the process of using one loan to pay off multiple other loans. If you have more than one loan, then consolidating your debt, and rolling it into one consolidated loan, could sound like a good idea.

How does it work?

Let’s say you have three different credit cards of different amounts ($3,000, $5,000 and $8,000 for example). For each of these loans you will be paying separate interest rates, annual fees and your repayments will likely be at different times across the month.

If you want to consolidate your debt, you could instead take out a single personal loan, and use that to pay off the balance of your three credit cards, as well as outstanding interest and annual fees. Then you’ll only need to focus on repaying the single personal loan. That means you’ll only have one interest rate. 

Generally speaking, the interest rate for personal loans is lower than that of credit cards. However, with credit cards, you typically only need to pay interest if you carry over a balance at the end of the month. With personal loans, you are often paying interest each month, regardless of how much you pay. 

Different ways to consolidate debt

There are a few ways that you can consolidate your debt. Here are the three main ways:

  1. You can combine all of your debt into a single personal loan;
  2. If you’re wanting to consolidate your credit card debt, you can consolidate it using a balance transfer credit card;
  3. If you’re wanting to consolidate your mortgage, you can do so with a home loan top-up or opt for refinancing.

Why would you consolidate your debt?

In what situation would you consolidate your debt? If you have multiple different loans or types of credit, then you might take out a debt consolidation loan to achieve the following:

  1. Get a potentially lower interest rate;
  2. Make your repayments easier and streamlined;
  3. Have a clear timeline of when you’ll be debt-free.

Things to consider

Before taking out a debt consolidation loan, there are some things you should consider. We’ve listed the pros and cons below.

Pros

There are some pros to consolidating your debt. Here are a few:

Convenience

When you consolidate your debt, instead of having to keep track of multiple repayments, you will only need to worry about one. That means, less worry for you and less chance you might forget to repay your outstanding debt and risk harming your credit score.

Fixed rates and terms

When you take on a debt consolidation loan, you can get a loan with a fixed interest rate and term. That means you’ll know exactly how much you need to pay each month and when. This can make it much easier to budget for and could reduce the likelihood that you’d default on your loan. 

However, it is worth pointing out here, that you shouldn’t take on a loan that you can’t afford to pay. Defaulting on your loan could result in you having to pay fees and a higher interest rate, which could cost you more. Plus, defaults can harm your credit score.

Lowering your monthly repayment

If you take on a longer loan term, then your payments will be spread across a longer period and therefore, your monthly repayments should be lower. However, the longer you take to repay your loan, the more interest you’ll have to pay. This could cost you more in the long run. It’s always important to weigh the short term benefits against the long-term cost to see if you’re saving money.

Cons

Here are some of the downsides of consolidating your debt:

You might end up paying more and accumulating more debt

When you’re considering debt consolidation, you should compare the interest rate for the new loan, as well as the fees and any other costs, against your current loans or credit cards. If your new loan is going to be more expensive than your existing credit, then it might not be worthwhile to consolidate your debt. 

After all, the purpose of consolidating your debt is to try and reduce it. This is especially true if you have taken on a loan with a longer loan term, as you will likely be paying interest for the life of the loan.

It could damage your credit score

There are several ways in which taking on a debt consolidation loan could damage your credit score if you don’t use it properly. Namely, every time you apply for some kind of credit, whether it be a loan or credit card, a hard enquiry will appear on your credit report and lower your credit score, initially.

Furthermore, if you take on a debt consolidation loan and you’re not able to pay it back and you default on your repayments, then this will also hurt your credit score. That’s why it’s important to consider whether consolidating your debt is right for you.

Is debt consolidation right for you?

Unfortunately, the answer to the question “is debt consolidation right for you” completely depends on your financial situation. That’s why it’s important to weigh the pros and cons and make a decision that’s best for you.

If you’re not sure, here are some steps you can take first:

  1. Reach out to a financial counsellor, they’re free, and they can provide you with advice tailored to your situation;
  2. Reach out to your credit providers to see if they can change your repayments or extend your loans. The National Debt Helpline has some helpful information on how you can negotiate payment terms.
  3. If you are wanting to consolidate your home loan, it could be worth chatting with your mortgage provider, especially if you are going through hardship. Alternatively, it could be beneficial to switch home loans altogether and find one with a lower interest rate and fewer fees.
Posted on

5 Ways to Reduce Credit Card Fees

reduce credit card fees

Whilst credit cards can be a useful tool, they often come with a range of different fees. Credit card fees can end up costing you a lot of money in the long run. That’s why we’ve put together this helpful guide on how to reduce credit card fees in 5 simple ways.

reduce credit card fees

What is a credit card?

Before we dive into the ways you can reduce credit card fees – let’s start with the basics. What is a credit card? A credit card is a line of revolving credit at a set limit that refreshes periodically, generally each month. 

You can use a credit card to make purchases, balance transfers and cash advances. When you take out a credit card, you do so with the condition that you pay back the money that you spent, plus any additional interest. At the very least, you’ll have to make the minimum repayment each month by the due date.

Different types of credit cards

There are many different types of credit cards which all come with their unique benefits and downfalls. One key rule to keep in mind – if you are getting some kind of benefit, such as rewards, low-interest rates or no annual fee, you are often paying for it in another way. This could be through extra fees or higher interest rates. That’s why it’s a good idea to weigh the pros and cons before deciding on which card is right for you.

Here are some of the most common types of credit cards:

  • Low-interest credit card – a low-interest credit card, is a card that offers a lower interest rate than normal. However, to offset the lower interest rate, these types of cards often come with a higher annual fee, more restrictions and fewer rewards.
  • Balance transfer credit card – A balance transfer credit card allows you to transfer your credit card debt from another credit card to this one. A balance transfer credit card usually comes with lower interest rates or even an interest-free period. This allows you to repay your debt and save paying interest on your other card. However, this card is only beneficial if you can pay it off within the low or interest-free period, otherwise, it could end up costing you more.
  • No annual fee credit card – like the name suggests, this kind of credit card doesn’t come with an annual fee, either for a set period or for the life of the card. However, you’ll usually be charged higher interest rates, which could cost you more in the long run.
  • Rewards credit card – This kind of credit card gives you some kind of reward when you make purchases, whether it’s frequent flyer points, retail rewards, supermarket rewards, cashback deals, and petrol rewards. 

Common credit card fees

There are several different credit card fees that you’ll need to keep an eye out for. What fees you’ll be charged, and how much they’ll cost you, completely depend on your specific card. That’s why it’s important to read the terms and conditions carefully before applying for a credit card.

Here’s a breakdown of some of the most common credit card fees.  

Annual Fees Most credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
Interest Just like an annual fee, most credit cards come with interest. You will be charged interest when you carry a balance (when you don’t completely pay off your credit card debt for the month). 

There are different types of interest rates. They might be called: purchase rate, cash advance rate, balance transfer rate or promotional interest rate. 
Balance transfer fee A balance transfer is when you move your existing debt onto a new account. This can allow you to get on top of your debt, but, you’ll generally be charged a fee to do so.
Cash advance fee When you withdraw money from an ATM with your credit card or buy foreign currency – this is referred to as a cash advance. When you perform either of these actions you will generally be charged a cash advance fee.
Late payment fee Your credit card limit typically refreshes each month. At the end of your monthly period, you’ll receive your bill for how much you’ve spent. With credit cards, you don’t have to repay the full amount, but you’ll pay at least the minimum amount by the due date to avoid late payment fees. If you don’t, then you’ll likely be charged a late payment fee.
International transaction fee If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. An international transaction fee can also be called a foreign transaction fee or a currency conversion fee.

How to reduce credit card fees

Now that you’re armed with all of the information you need on types of credit cards and common fees, let’s get stuck into how to reduce credit card fees. Here are five things you could do.

1. Pay your card off in full before the due date

Each month, you will receive your credit card bill. If you don’t pay this off by the due date, you will be charged late fees and interest. If you pay the full amount off each month, not only will you avoid late fees, but you’ll also avoid having to pay interest on the amount carried over into the next month. This is a great way to reduce credit card fees.

Or, at least make your minimum repayment by the due date

If you can’t repay your credit card balance off in full each month, you should try and at least make your minimum repayment. Your minimum repayment is the lowest monthly repayment you can make without incurring late fees. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month.

By paying the minimum repayment by the due date, you won’t have to pay late fees. However, you’ll still accrue interest on what’s still owing, and this could cost you a lot in the long run.

Therefore, if you want to reduce credit cards fees, you could try and repay your balance off in full each month, or at the very least, make your minimum repayments. It is also worth highlighting that many credit cards, especially low-interest rate credit cards, will void the credit card offer or rewards system if you are late with a payment.

2. Opt for a low annual fee credit card

There are certain credit cards on the market that offer good deals for the annual fee. Some cards might offer a low annual fee and some might offer no annual fees either for a certain time or for the life of the card.

Whilst this is a good way to reduce credit card fees, it is important to highlight that many of these cards will offset the lower annual fee with higher interest rates. This could cost you more in the long run. That’s why it’s a good idea to weigh your options and see what’s the best decision for you.

3. Avoid using your credit card to make ATM withdrawals

When you use your credit card to withdraw money from an ATM, this is called a cash advance. Just like any other purchase you make with your credit card, you will need to pay this back. What’s more – most credit card providers charge a fee for cash advances. How much the fee is, depends on your specific card. 

If you want to reduce credit card fees, you could do this by not using your credit card to withdraw money from an ATM. If you need to withdraw money from an ATM, you could use your debit card instead, which might not charge you any fees.

4. Don’t use your credit card for international transactions

If you want to avoid being charged a fee for international transactions, there are two ways you can go about this. The first is you can shop around and look for a credit card that doesn’t charge a fee for international transactions. Alternatively, you could avoid making foreign transactions on your card altogether. Either of these options could help you reduce credit card fees.

5. Do your research before applying for a credit card

The final tip to reduce credit card fees is to do your research before applying for a credit card. Think of why you want a credit card and then try and find the best one for your needs. You could compare interest rates, fees, and find one that best aligns with your needs.

Posted on

Does a Personal Loan Harm My Credit Score?

Does a Personal Loan Harm My Credit Score

There are many reasons you might want to take on a personal loan – an unexpected expense, an upcoming holiday, or even to cover a medical bill. But if you’re wondering “does a personal loan harm my credit score?”, Tippla has done the legwork for you! Below you’ll find the information you need to know.

Does a Personal Loan Harm My Credit Score

What is a personal loan?

A personal loan is a type of credit that allows you to make big purchases or consolidate your debts. These types of loans are repaid with interest over a fixed term, ranging from months to years. You can apply for a personal loan from a bank, credit union, or online lender.

The reason for taking out a personal loan can vary. Here are some examples:

  • Consolidating debt;
  • Big purchases: car, holiday, wedding, renovations, medical, etc;
  • To cover unexpected expenses.

If you decide to apply for a personal loan, it can be overwhelming to see how many options are out there. It can be difficult to understand what’s the best loan for you. Here are some key factors to keep an eye out for when comparing loans:

  • Interest rate;
  • Repayment terms;
  • Borrowing limits (minimum and maximum amounts);
  • Fees;
  • Collateral requirements.

Types of personal loans

There are many options for personal loans. That’s why it’s important to understand your personal and financial situation so you can choose the best option for you. Here’s a breakdown of the two most common types of personal loans:

Secured loan: a secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security and if you default on your loan, then you’re at risk of losing the asset.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

Unsecured loan: as the name suggests, an unsecured personal loan has no asset attached to the loan. Because of this, the lender is taking on more risk which means you’ll generally be charged higher fees and interest rates than a secured loan. This type of loan is good if you don’t have an asset, though you may have to convince the lender that you’re able to make the repayments through proof of income, and if this is your first loan, you may require a guarantor for security. 

What is a credit score?

Before moving straight into discussing the question “does a personal loan harm my credit score”, let’s take a moment to talk about credit scores. Let’s start with the most important question – what is a credit score? A credit score is a number that ranges from 0 – 1,200. 

A lot of people don’t know how credit scores are calculated. To put it simply, your rating is based on the information contained in your credit report. Your report considers factors such as your repayment history, your credit accounts and even how many times you have applied for credit.

A good credit score indicates to lenders that you have a high level of creditworthiness. The better your score, the more likely you will be approved for a loan and reap the benefits of a higher loan amount and/or lower rates. Your score falls somewhere on a five-point scale ranging from below average up to excellent. 

Equifax and Experian credit scores

Source: Equifax and Experian

Does a personal loan harm my credit score?

Unfortunately, there isn’t a simple answer to “does a personal loan harm my credit score”. Like any form of credit, a personal loan will affect your credit score. But how it affects your score depends on how you handle the personal loan.

When you first make an application for the loan, your credit score will be lowered. Whilst your credit rating will take a hit when applying for the loan, after this point, a personal loan can be beneficial for your score. When used responsibly, your credit score can improve when you take out a personal loan. 

Let’s take a closer look at this.

Applications

When searching for the right personal loan you should try and minimise the number of applications you make. Why is this? When you apply for a personal loan, you are giving the company you’re applying to permission to check your credit report. When they check your credit report this is referred to as a hard enquiry. Hard enquiries harm your credit score, regardless of whether you are approved.

A large number of applications within a short period of time are not viewed positively. Not only will the multiple applications harm your credit score further, but future lenders may also assess your application and deem this proof of you being rejected previously, thus making you a risky borrower.

Instead, you could consider researching your options further and only make one application for the loan which best matches your criteria.

Repayments

If you fail to repay the loan, it will appear on your credit report as a default. This will negatively impact your credit score. Not only will this stay on your credit report for five years, but you may also lose the asset you used to secure the loan (if applicable) or run the risk of having to deal with debt collectors.

What to consider before taking on a personal loan

So we’ve covered the question of does a personal loan harm my credit score, but what about the factors you should consider before taking out a personal loan? Here are some things you should consider before applying for a loan.

Do you meet the loan requirements?

The first thing you can consider is whether you meet the requirements for a personal loan. The basic requirements of any loan are that you are over the age of 18, have a regular income, be a permanent Australian resident (or hold an acceptable non-resident visa), and can provide an overview of your current financial situation.

Check the terms and conditions

The next step you could take is to look into the finer details of your loan. The interest rate is the amount that the financial institution charges in addition to the money you’ve borrowed. Aiming to find the lowest interest rate means that you can focus on paying off your loan rather than extra interest. 

On top of interest rates, you may also have fees associated with your loan. All loans have different associated fees; some to look out for include establishment, servicing, early repayment, early exit, insurance, and withdrawal fees. 

How long is your loan term?

Another factor worth considering is the term of the loan. The length of your personal loan will determine the amount of interest you are charged over its life. Typically, the longer the loan, the lower the monthly repayments. 

How will you pay off the loan?

When taking on a loan, it is important to know beforehand how you will pay off the loan. Whether you choose to opt for weekly, fortnightly, or monthly repayments – or even want to pay it off sooner than the term. Such elements are great starting points to consider before making any personal loan applications.

Effectively manage debt

As we’ve addressed in this article, the question “does a personal loan harm my credit score” isn’t a straightforward one. But if you can effectively manage your personal loan and your debt, then you could actually make your loan work for you.

Here are some easy steps you could take to effectively manage your debt:

  • Consistently make your repayments;
  • Don’t borrow more money than you can afford;
  • Consolidate your debt;
  • Take the time to look for the loan that offers the best value instead of creating multiple applications;
  • Consider making extra repayments if you can;
  • Seek expert advice if you encounter trouble.
Posted on

What’s The Difference Between Credit Cards And Personal Loans?

credit cards and personal loans

If you are looking for extra finance, whether it’s to make a big purchase, cover unexpected expenses, or build a credit history, there are two main options available for you – a credit card or personal loan. These two types of credit are very popular in Australia, but we’re here to break down the difference between credit cards and personal loans, so you can choose what’s best for you.

credit cards and personal loans

What is a credit card?

Before we jump into the difference between credit cards and personal loans, let’s start with the basics – what is a credit card? Literally speaking, a credit card is a piece of plastic or metal that is issued by a bank or financial services company. 

You can use a credit card to pay for goods and services, as well as any personal expenses that may arise. A credit card is a line of credit that you can use to pay for personal or business expenses on the promise that you repay the money back, often with interest. Your credit card is a revolving line of credit, which means it refreshes after a certain period of time – typically each month, and it will continue to do so up until you cancel the card.

Because a credit card is a line of credit, this means you don’t need to have the money physically in your bank account, as is the case with a debit card. This is where credit cards and personal loans are similar.

Different types of credit cards

In Australia, there are many different types of credit cards. Whilst the basics stay the same, the different types of credit cards all come with their unique purposes and benefits. Here’s a quick overview of the different options available to you.

Low-interest credit cards As the name suggests, a low-interest credit card is a credit card that offers a lower interest rate than normal. Many credit cards charge 20% or more on purchases, whereas low interest-rate credit cards generally have an interest rate that’s 14% or lower. These cards can also come with no interest periods, typically up to 55 days. However, low-interest credit cards can generally come with more restrictions, fewer rewards and a higher annual fee.
Balance transfer credit cards A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card. The balance transfer credit card usually has a low interest rate or sometimes even a 0% interest rate for a limited time. 

This allows you to repay your existing debt, and try and repay your new debt with the balance transfer credit card within the interest-free or low-interest period, which can save you money. However, if you can’t repay it within this period, then it might cost you more in the long run.
No annual fee credit card Most credit cards come with an annual fee that you have to pay each year across the life of your credit card. A no annual fee credit card is a type of credit card where you don’t have to pay this fee. 

There are two main types of no annual fee credit cards – the first is where you don’t have to pay an annual fee during the whole life of the credit card, the second is where you don’t have to pay an annual fee during an introductory period, which usually lasts for 1 or 2 years.

To offset the lack of an annual fee, these types of credit cards usually come with higher interest rates, which could actually cost you more in the end.
Rewards credit card Rewards credit cards give you some kind of reward, usually in the form of points, every time you make a purchase. There are many different types of rewards cards, and the points can be used for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points and petrol rewards.

Whilst these cards can give you bonuses, they don’t come for free. Generally speaking, rewards cards often come with higher annual fees and it can take a while for the points to build up (and they can expire). So, it’s important to read the terms and conditions carefully and weigh up the pros and cons.
Cashback credit card With cashback credit cards, you can get cashback when you make purchases. This can come in the form of a cash voucher or money credited back to your account. However, as with all types of credit cards – when there are perks, that generally means higher fees. 

In this instance, cashback credit cards often come with higher interest rates and an annual fee. Some cards can also cap how many cashback points you can earn.
Frequent flyer credit card A frequent flyer credit card is a common type of rewards credit card, and it’s great for those who love to travel. When you spend on your frequent flyer credit card, you’ll accrue points. When you build up enough points you can put them towards flights and either get cheaper flights or have the whole cost covered by points – depending on how many you have.

The downsides to this type of credit card are that the frequent flyer points can expire. These types of credit cards also generally come with standard credit cards fees such as – annual fee, program fee, cash advance fee and more.
Platinum or black credit card Platinum or black credit cards are high-end credit cards. You can get a number of benefits with these cards – exclusive dining and travel deals, as well as rewards points that don’t expire. If you’re over 18 and earn more than $50,000 each year, have a good credit score, then you can apply for one of these credit cards.

Some of the drawbacks of a platinum credit card include much higher annual fees and interest rates.

What is a personal loan?

Similar to a credit card, a personal loan is a line of credit that allows you to pay for personal expenses – whatever they may be. A personal loan allows you to borrow a specific amount of money under the agreement that you pay it back within a predetermined time period, referred to as the loan term, with interest. 

The interest rate you are charged will depend on a couple of factors, including your credit score. Want to see where you’re at? Check your credit score with Tippla here.

When taking on a personal loan, you can get a loan with a fixed or variable interest rate. You can also choose between a secured or unsecured personal loan. 

Different types of personal loans

There are a couple of different types of personal loans. Here is a breakdown below.

Secured and unsecured personal loans

The two main types of personal loans are secured and unsecured personal loans. A secured personal loan is when you take on a personal loan that is guaranteed by an asset such as a car. This asset is used as security against you defaulting on your loan. If you default on your repayments and can’t afford to repay the loan, then you are at risk of losing your asset.

Secured personal loans are generally used to purchase the security you’re using against the loan. Let’s break that down. Say you want a loan to buy a car, then the car you buy will be the security on the loan.

One of the benefits of a secured loan is that you can generally get lower interest rates. Interest rates are set to protect the lender against the risk of you defaulting on your loan. Because your asset serves as collateral, the lender can afford to offer you lower interest rates, because they have already hedged against the risk of you defaulting on your loan.

Unsecured personal loans, on the other hand, is a personal loan that you don’t have to provide any security for. Reasons for taking out an unsecured personal loan range from holiday expenses, home improvements, unexpected expenses, medical bills and more.

Because there’s no security against the loan, the interest rates are generally higher for unsecured loans. But on the plus sign, the application and approval process is usually quicker.

Fixed or variable interest rate personal loans

When it comes to interest rates on personal loans, the most common are either fixed-rate or variable-rate loans. Here’s what that means. A fixed-rate personal loan is when the interest stays the same for the whole loan term.

One of the perks of this is it allows you to easily budget for your repayments, as they stay the same each month. However, a downside of this is you could miss out on your interest rate being reduced if interest rates go down. On the flip side, if interest rates go up, then you’re protected with a fixed-rate personal loan.

Variable-rate personal loans are when the interest you’re charged each month isn’t the same, and it can fluctuate depending on the market. Some of the pros of this type of loan include – fewer repayments because you can make earlier repayments and pay off your loan sooner, more flexibility and potentially lower interest rates.

Although there are some positives to choosing this type of loan, there are still some things to consider. Namely, you might end up having to pay more in interest if the interest rate rises. This can cost you in the long run.

What’s the difference between credit cards and personal loans?

Whilst there are many similarities between a credit card and a personal loan, there are also some differences. So what is the difference between credit cards and personal loans? Here are the main points:

Borrowing amount

When you are approved for a personal loan, you will be given a set amount of money in a lump sum at the beginning of the loan term. You can’t spend more than the amount you have been given unless you take out an additional loan. With a credit card, the borrowing limit refreshes each month, so your borrowing limit is more flexible than a personal loan.

Length of term

Personal loans generally come with a fixed term, whether it be a couple of months or years, and they come with a termination date. Credit cards, on the other hand, are a revolving line of credit and refresh each month. For most credit cards, you can have them for as long as you want – whether that’s a month, years, or even decades. The length of time is determined by you as the customer.

Interest rates

Personal loans generally have lower interest rates than credit cards. According to the Reserve Bank of Australia (RBA), the average variable interest rate for a personal loan as of September 2020 was 14.41% and 12.42% for a fixed personal loan. Whereas the average credit card interest rate ranges from 16-18%, according to numerous comparison sites. However, you can avoid paying interest on your credit card if you pay off the card balance in full each month.

Rewards

Although credit cards might have higher interest rates, they generally come with more rewards and perks. As we covered above, sometimes you might end up paying more for these perks, but if you use them wisely, you can make them work for you.

What’s the right decision for me?

Now you know the difference between credit cards and personal loans, you might now be thinking about what’s the best choice for you. At the end of the day, only you know your financial situation. However, there are a couple of things you can consider when choosing between a credit card or a personal loan. 

Firstly, if you have control over your spending and can follow a budget, then a credit card might meet your needs. Whereas if you’re looking to make a big one-off purchase or pay for an expense, a personal loan might be better for you.

If you’re unsure, you can speak to a free financial counsellor who can help you make the best decision for your personal situation.

Posted on

What Affects My Credit Score? A Quick Guide

what affects my credit score

Whether you’re applying for credit or simply want to know more, we hear you, and we’re here to answer the age-old question of what affects my credit score? Tippla has provided a breakdown below.

what affects my credit score

What is a credit score?

Before answering “what affects my credit score”, let’s first discuss what is a credit score? Your credit score is a number that ranges from 0 – 1,200, based on the information contained within your credit report. Your score falls somewhere on a five-point scale ranging from below average up to excellent. Your credit score indicates to lenders your creditworthiness; the higher your score, the more reliable you appear to a potential lender. 

What is a good credit score?

Due to Experian and Equifax calculating your credit score differently, the categorisation of the “below average” to “excellent” scale differs between the bureaus. 

good credit score

Source: Equifax and Experian

What’s the difference between a credit score and a credit report?

Your credit score is a number falling somewhere between 0 – 1,200, depending on the reporting agency. In contrast, your credit report includes detailed information regarding your credit history. Your credit score is calculated based on the information contained in your credit report. If you’re still confused about “what affects my credit score”, it’s the information contained within your credit report.

What goes onto your credit report

Many things go onto your credit file, and all of this information will have some kind of impact on your credit score. It’s not just your credit accounts that appear on your report; phone bills, personal loans, and payments to utility companies will also feature on your report. 

Your personal finances, such as checking and savings accounts, have little to no effect on your credit score, as your credit report is only concerned with the money you owe or have previously owed. However, in some unique situations, your personal finances may be affecting your credit score.

What affects my credit score? 

In Australia, you have three different credit scores; here at Tippla, we provide you with your Equifax and Experian scores. It’s important to note that these scores may be slightly different, as they are scored on different scales and attribute different values to the contributing factors. 

Here’s what goes onto your Equifax credit report:

  • Type of credit provider
  • The type and size of credit requested in the application
  • Number of credit enquiries and shopping patterns
  • Directorship and proprietorship information
  • Age of your credit report
  • The pattern of credit enquiries over time
  • Personal information
  • Default information
  • Court writs and default judgements
  • Commercial address information

Here’s what goes onto your Experian credit report:

  • Type of credit provider
  • Type of product that was applied for
  • Repayment history
  • The credit limit on each of the credit products
  • Amount of credit enquiries
  • Any negative events

What harms my credit score

When understanding what affects my credit score, it’s equally important to look at what is also harming it. At Tippla, your reports come from the two leading credit bureaus in the world – Experian and Equifax, each of which considers different factors as detrimental when calculating your credit score.

What harms your Equifax credit score: 

  • Late repayments
  • Applying for a large amount of credit in a short period of time
  • Closing a credit account
  • Stopping credit-related activities for an extended period
  • Negative public records, such as bankruptcy

What harms your Experian credit score:

  • A large number of credit applications in a short period of time
  • Open accounts with debt collection agencies
  • Short term credit
  • Missed payments
  • Bankruptcy actions
  • Defaults
  • Court judgements

It is essential that you check all your information listed in your credit report to make sure there aren’t any mistakes that could diminish your score. Specifically, check to see that any of the debts and loans are yours and your personal details such as your name and date of birth are correct. If you find any errors or out-of-date information, contact that credit reporting agency and ask them to fix the mistakes.

What improves my credit score

Whether you’ve just checked your credit score and it wasn’t quite as high as you expected, or maybe you just want it to be even better, you can take steps towards improving it when you know what affects your credit score. Maintaining a good credit score means that you are more likely to be approved for different types of accounts and are more likely to get better interest rates when applying for a loan.

When you receive your scores, you should also be able to see the risk factors impacting your score the most; from this information, you can see where changes should be made and make a conscious effort towards doing so. It should be noted that any actions you take won’t see immediate change, and you’ll need to allow time for your creditors to report your positive behaviour before it is reflected in your credit score.

Tips to improve your credit score 

Changing your behaviour can help improve your score over time. You could start by paying your bills on time, as your previous payment history is an indication of your future performance. You could also ensure that you pay off debt and keep balances low on your credit cards and other revolving credit.

You could also improve your credit score by only applying for and opening new credit accounts as necessary. Taking on unneeded credit can damage your score by creating too many hard enquiries or simply tempting you to overspend and accumulate more debt. 

In addition, applying for too much new credit can harm your credit score because it results in numerous hard enquiries, which remain on your report for two years. 

How to fix my credit score

Now that we’ve answered the question of what affects my credit score? Let’s discuss how you can fix your score. 

Credit repair companies offer to quickly fix your credit score by correcting the visible issues on your credit report. Unfortunately, many of the issues can’t be resolved immediately and are things you could do yourself (for free). By reading through your credit report and understanding your score’s contributing factors, you can change these behaviours to prevent yourself from a further decline. 

An important thing to remember is the time taken to fix your credit score can vary, depending on how severe the negative entry is:

  • Enquiries remain for two years.
  • Late repayments can take seven years to leave your credit report. 
  • Public record items can remain on your report for seven years, but some cases of bankruptcy can stay for ten years.

Rebuilding and improving your credit score does take some time, and there aren’t really any shortcuts you can take. One of the best steps you can do is to check your credit scores with Tippla today; from there, you can review which factors negatively affect your score and then head over to the Tippla Credit School to learn more about improving your rating.

Posted on

How To Check My Credit Report For Free

How To Check My Credit Report For Free

Your credit report is an important document that gives you a clear overview of your credit history and current standing. It’s no wonder a lot of people ask us “how to check my credit report for free”. Tippla has the breakdown for you below.

How To Check My Credit Report For Free

What is a credit report?

Your credit report is a document that outlines your credit history. It is a summary of how you have handled your credit accounts and managed your debt. If you have a personal loan, home loan, credit card, or your name is on a utility bill, then you will have a credit report.

In Australia, you have a credit report with three credit bureaus – Equifax, Experian, and illion. Each month, your creditors and lenders will report your credit information – such as your repayment activity and history, to one of these three bureaus. The information reported by these financial institutions is what makes up your credit report.

The information on your credit report is what’s used to determine your credit score – a number ranging from 0 -1,200. It provides an indication of how reliable of a borrower you are. If you have positive information on your credit report – such as a reliable repayment history, then you will likely have a good credit score. 

However, if your credit report is filled with negative entries, such as defaults, bankruptcy, etc, then you will likely have an average to below-average credit score.

What goes onto your credit report?

There are many things that go onto your credit report, as outlined by Equifax, your credit report contains the following types of information:

Personal information Your credit report will contain certain information about your identity, such as your name, address and date of birth. It won’t include information such as your marital status, salary, etc.
Credit account information Listed on your credit report will be your credit account information. This includes the type of accounts you have, such as a credit card or loan, the date it was open and your credit limit.
Repayment history Your repayment history for your credit accounts will be listed on your credit report.
Credit applications Your credit report will list all of the enquiries that have been made on your report. There are two types of enquiries – hard or soft. Hard enquiries are when a lender or creditor looks at your report when you apply for a loan or type of credit. 

Hard enquiries affect your credit score. A soft enquiry does not affect your credit score, and ranges from you checking your own report or if a company checks your report for a pre-approved offer. If you have applied for credit, then it will show on your report.
Bankruptcies and defaults Your credit report contains negative entries, if applicable. This can include bankruptcies and defaults. Bankruptcy will stay on your credit report for up to 5 years. If you have defaulted on any of your credit repayments in the past 5 years, then it will appear on your credit report.

How long do items stay on your credit report?

Let’s get stuck into how long items stay on your credit report. Here’s a breakdown:

  • Credit accounts – all of your current accounts, and any that you have closed in the past 2 years;
  • Credit applications – any application you have made for some time of credit will remain on your report for 5 years;
  • Repayment history – your repayment history over the past 2 years will appear on your credit report;
  • Defaults – if you have defaulted on any repayments in the last 5 years then it will appear on your report;
  • Court judgements and bankruptcies – 5 years;
  • Serious credit infringements – these can stay on your credit report for up to 5 years.

Why does my credit report matter?

There are many reasons why your credit report matters, but we’ll take you through a few. One of the main reasons why it’s important to check your credit report and keep it, and your credit score healthy, is because it affects your ability to borrow.

If you have a lot of negative entries on your credit report, such as numerous defaults, then you will be perceived as a riskier borrower. Because of this, you might find it much harder to be approved for credit. 

Not only that, but the credit or loans you are approved for will likely come with higher interest rates, more fees and smaller borrowing limits. If you don’t take care of your credit report and credit score, then it can limit your finances, and as a result, your life. 

If you move into a new house or apartment and you need to sign up for your utilities, such as electricity and water, if you have a bad credit report and a low credit rating, then you might also be rejected by providers because you’re deemed too high of a risk. You could also struggle to get a phone contract.

Your credit report can also be valuable in helping you detect identity theft. If you check your credit report and see that something that doesn’t add up, such as a credit account you don’t recognise, then this could either be a mistake or an indication that someone has stolen your identity and is using it to open credit accounts. That’s why it’s important to check your credit report frequently.

How to check my credit report for free?

Now that you understand what your credit report is and its importance, let’s answer the question “how to check my credit report for free”. There are a few ways you can do this, and it depends on how long you’re willing to wait.

Request your report from the credit bureaus

If you would like to view your credit report for free, you can request a free copy from each of the bureaus – Equifax, Experian, and illion. However, it is important to highlight that you will have to wait approximately 10 days if you want to get a free copy. 

Generally, the bureaus will only allow you to see your credit report free once a year. You may have to pay for a copy of your report from the bureaus if you request a copy more than once a year, and if you want to receive it faster than 10 days.

Sign up to a platform like Tippla

This is where platforms like Tippla come in handy! With Tippla you can view your credit reports and credit scores from the two largest credit bureaus in the world – Equifax and Experian. On Tippla you can access your free personal Equifax credit report and your free personal Experian credit report.

Signing up to Tippla is completely free and you can view your credit report and score as often as you want – it won’t hurt your score. Your report is updated every 90 days, so you can see how you’re tracking throughout the year.

Does checking my credit report hurt my credit score?

No, it doesn’t! You can check your own credit report as often as you like, it won’t hurt your credit score or reflect badly on your report. This is because when you look at your own report, it is registered as a soft enquiry. Soft enquiries don’t affect your credit score.

The damage is done when you apply for a loan or type of credit, like a credit card. This is because when a lender or creditor views your report to see if you are a reliable borrower, this registers as a hard enquiry. Hard enquiries initially harm your credit score and will remain on your report for up to 5 years.

For more information on what affects your credit score and report, head to Tippla’s financial blog to find everything you need to know and more.

Posted on

How to Remove Negative Entries From Your Credit Report

how to remove negative entries from your credit report

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.

how to remove negative entries from your credit report

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:

What stays on your credit report and for how long
Defaults If you have defaulted on any credit repayments, it will show on your credit report for 5 years.
Court Judgements If you have received any court judgements, it will appear on your credit report for 5 years.
Bankruptcies If you enter into bankruptcy, it will show on your report for up to 5 years.
Serious Credit Infringements Any serious credit infringements will stay on your report for up to 7 years.

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.

Posted on

How Long Does Bankruptcy Stay on Your Credit Report?

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.