What is a bad credit score and how does it affect you?

Debt consolidation can affect your credit score, but a lot depends on your ability to repay the debt. Having too much debt, especially spread over different kinds of credit, can increase your chances of defaulting or failing to repay the money you owe. Consolidating your debts into a single credit product - at a possibly lower interest rate - is one way of lowering this risk. By paying off your debts, this positive behaviour may show on your credit report and you you may be able to boost your credit score. This is provided you can make timely repayments and not take on additional debt. 

From a credit reporting bureau’s perspective, lowering the number of debts and reducing your overall indebtedness is seen as a positive move. To ensure the consolidation loan does not hurt your credit score, you may want to consult a financial advisor before starting the loan application process.

In Australia, your driver’s licence is the preferred identification document among credit reporting bureaus.

Most companies that can provide you with your credit score accept some alternative forms of identification, primarily your passport or Medicare card. However, the recommended document is a valid Australian driver’s licence.

It’s highly unlikely that you’ll be able to confirm your identity using other documents, such as a proof-of-age card.

You’ll also need to provide valid personal details such as your name, date of birth, and residential address. If you’ve lived in your current residence for less than six months you may also need to provide previous home addresses.

You may have genuine reasons for not wanting to provide your licence details, such as concerns over identity theft. Some credit reporting agencies offer packages, at a cost, that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.

If you don’t have a driver’s licence, there’s a good chance that you haven’t applied for credit in the past and don’t have a credit score at all.

When a creditor is unable to contact you by phone or by sending you a formal notice in regards to outstanding debt, they will often outsource the job to a debt collector. The debt collector can try to reach you by phone, or they can attempt to contact you face to face. If they cannot get through to you by either method, they can only report back to the creditor but not directly report a payment default to the credit rating agency. So, can debt collectors affect your credit score? No, they cannot do so directly.

However, if you owe money, you have an obligation to return it or communicate your difficulty in doing so to the creditor as well as to any involved debt collector. If they cannot contact you, they can report a serious credit infringement against you, which may affect your credit score for many years. Creditors can also take the legal route, and a court judgment against you can also severely impact your credit score.

You should remember that debt collectors need to abide by specific rules and cannot harass you by repeatedly calling or visiting you, or by threatening to confiscate your possessions if you don’t pay up. Similarly, they cannot threaten to file a default against you, especially with a credit bureau.

Whether it’s through a home loan, a personal loan, or a credit card, borrowing money will affect your credit score. Taking on a home loan or a credit card may have a positive impact on your score, but too many loan applications can bring your credit score down.  

Every time you apply for credit, an inquiry is performed against your name. Too many inquiries can reflect negatively on your credit report, and if your loan application is rejected it will negatively impact your credit score.

How you handle your debt can also make a big difference. As long as you make timely payments you may be able to improve your credit score and overall creditworthiness. However, any missed or delayed payments will likely result in a negative impact on your credit score.

Home loan pre-approval can give you a better idea of the amount you can spend when buying a property. It can also tell you about the steps you need to take to finalise your home loan and receiving the funds. Depending on how you approach a lender, pre-approval could include a credit inquiry which does affect your credit score. Some lenders, however, may offer an online pre-approval which is faster and doesn’t involve a credit history check. An online pre-approval may only consider your financial capacity and offer suggestions on how to prepare yourself to take a home loan.

Most lenders, however, will likely prefer to make a full assessment of your financial situation by requesting a credit report in addition to your bank statements and tax returns. Such a credit inquiry, sometimes called a hard pull, is usually recorded on your credit file and can therefore affect your credit score. If you approach several lenders and all of them initiate credit inquiries, this will impact your credit score negatively. Sometimes credit reporting agencies make an exception in terms of including multiple credit inquiries if they are made within a certain period. It would still be best to avoid making multiple applications with different lenders.