It is estimated that one in 10 Australian adults have at least one negative report on their credit file but only find out about it when they apply for a loan, credit card or mortgage and are met with rejection.
A loan application triggers a review of your credit file and the approached lender may conclude after reading it that you are a bad risk.
What is on your credit file may or may not be accurate.
Apart from your ID details, a typical report contains information such as payment defaults over the past five years, missed or even late payments, disputes with creditors, judgments, overdue accounts, bankruptcies and partner financial defaults on joint credit facilities.
A bad report can also result from making multiple loan applications to different lenders - in effect loan shopping - which can be interpreted as several knockbacks when in fact no application was actually rejected.
What is on my report?
You can apply online by searching on the internet for "free credit report". Veda has about 80% of the credit report market and Dun & Bradstreet the rest. Getting the report may take two or three weeks. If you want it in a day you can pay about $80.
The report will contain a detailed credit history, including applications you have made for loans in the past five years, details of overdue consumer credit accounts, account open and close dates, credit limits, monthly repayment history and whether or not you paid the minimum amount required on your financial commitments each month. It will also show any court judgements and writs.
How does it work?
Credit repair agencies say they will restore your good credit record by erasing black marks that result from contestable entries.
Contestable entries are essentially mistakes on your file, where lenders have not recorded payments you have made, or entered incorrect dates or amounts, or the wrong person is identified as defaulting.
You may have been confused with someone else with the same or similar name.
What these agencies can't do is eliminate correct default information, or black marks resulting from bankruptcy, or court judgements against you.
How much does it cost?
Credit Repair Australia, which claims to be the leading provider of both credit and debt solutions, would not disclose what it charges but says as a guide the process typically costs between $600 and $900 initially.
This amount is likely to increase depending on how much work is required to clear contestable blemishes. The company says the process could take around 30 days but each case is different and it could be longer.
Customers enter a payment plan that costs between $80 and $100 a week for the company to get to work.
A really messy file that Credit Repair says it tackled involved 23 errors, and it took a lot more than the 20 to 30 hours of work that typically goes into reviewing a file, investigating how each entry is created and how creditors came up with the information.
The company says that if it is clear from your file that there is nothing that can be done (for example, in the case of judgements) or that there are no apparent errors, it won't charge and tells you that they are better off handling it yourself.
The company says it charges on a success basis and if there is no success the fee is reimbursed.
It reckons in 10% of cases there is no charge. It claims to have 13 to 14 years of experience in cleaning up bad credit files and that it has skills that individuals with a bad file often don't have.
Useful contacts: the ombudsman in your state; Credit & Investments Ombudsman; Financial Ombudsman Service; Telecommunications Industry Ombudsman
Pros
If you don't have the time, or feel overwhelmed by the process and the likely paperwork involved, you can get someone else to do it for you.
Cons
The Consumer Action Law Centre has huge concerns about these agencies, including that they are unlicensed, they charge big upfront fees and they are vague about what they do.
The law centre claims that credit repair agencies charge for work you can do yourself by taking your blemished credit file to a free financial counsellor and discussing how to erase any errors.
Accurate negative entries on your file can't be fixed. The centre says credit repair companies tend to target people who find themselves in financial stress and panic.
My Call
This is a perfect example of how by doing it yourself you can save a lot of money.
If there are mistakes on your file they should become clear from your bank and other records, where you can show that the payment was made and on what date.
If there are multiple loan applications and no rejections, these too can be explained.
The thing about contestable matters is that you can contest them yourself by applying a bit of time, searching records and making some phone calls.
If you hit a brick wall on your own, contact a financial counsellor or go to the credit ombudsman.
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