Having access to a line of credit is important for any business, but even more so for start-ups and sole traders. A poor personal credit history may affect your ability to obtain an overdraft or a start-up loan.
Before being able to develop a proven credit history for your business, credit providers will often look at your personal credit rating in assessing your application. Therefore, it is imperative for business owners to understand the recent changes to credit reporting laws and take simple steps to maintain a clean, healthy credit report.
A ‘more comprehensive’ credit reporting regime
As part of the reform to the Privacy Act 1988 (Cth), credit reporting provisions were amended to bring Australia in line with the rest of the OECD countries. The amendments, which took effect on 12 March 2014, signify a move towards a more comprehensive credit reporting regime.
In the past, credit providers would only have access to ‘negative’ information when assessing the creditworthiness of a potential borrower, such as the fact that he or she has defaulted on a loan. The reform expanded the types of credit information that may be collected and used in credit reporting, including:
- The type of each credit account you hold;
- The date the accounts were opened/closed;
- The credit limit of each account; and
- Your repayment history information.
With more comprehensive credit information, lenders are able to assess more accurately the creditworthiness of a potential borrower. This means people with a good credit history will have much to gain. You can seek to take advantage of more individualised rates, rather than subsidising other delinquent borrowers. The following are two simple steps to stay on top of your personal credit history.
- Pay your bills on time
A default will be listed on your credit report if you are at least 60 days overdue in making a payment that is $150 or more. Before listing a default, the credit provider must have taken steps to collect the outstanding debt. This means they have sent you a written notice setting out the amount overdue and a separate written notice advising you that the debt may be reported to a credit reporting body. Importantly, the term ‘credit provider’ encompasses not only banks or credit unions, but also utility companies, telecommunications carriers, and any suppliers that extend credit for more than 7 days. Therefore, you need to be vigilant about your credit accounts. This means, for example, making sure that you cancel or move any utility services when you are moving to a new address.
From March 2014, your credit report would also include repayment history information, which presents a more balanced picture of your financial discipline. It includes information about whether the minimum repayment on a credit account has been made on time for each month and if not, how late the payment was made. You have a 14-day grace period before a late payment can be recorded on your credit report. As opposed to a default, your repayment history information can only be used or shared by an Australian credit licensee, which generally only includes banks, credit unions and building societies. If you can develop a track record of paying your bills and loans on time, it will have a significant positive impact on your ability to obtain credit in the future.
- Check your credit report regularly
You are entitled to a free copy of your credit report once every 12 months from each credit reporting body. It is important to review your credit report regularly, as it may alert you to any incorrect information or reveal signs of identity theft. The three national credit reporting bodies in Australia are Veda, Dun & Bradstreet and Experian. Amongst these three, Veda has the largest database on retail credit users, holding credit information on around 20 million individuals in Australia and New Zealand. Dun & Bradstreet mainly focuses on commercial credit data, while Experian has only recently entered into Australia’s credit reporting industry.
If you are concerned that the information included in your credit report is incorrect, you can request any credit reporting body or credit provider that holds personal information about you to correct the information for you. They are not permitted to charge you for making a correction request, or for correcting the information in your credit report. You should be wary of credit repair companies that promises to be able to ‘improve’ or ‘fix’ your credit report. They often charge very high up-front fees, sometimes thousands of dollars, for services that could otherwise be provided free of charge through an industry ombudsman, financial counselling service or community legal centre. In many cases, the fees charged by these companies unnecessarily compound their clients’ financial problems.
Maintaining a clean, healthy personal credit report is fundamental to the success of a small business. It gives your business a significant advantage when applying for finance, as credit providers will determine your ability to repay the loan based partly on the information in your credit report. By taking simple steps like setting up a direct debit to pay your bills and proactively monitoring your credit report, you are more likely to secure a much larger loan on far better terms for your business.
 Dun & Bradstreet Australia, Will my personal financial history affect my startup? (2015) <http://dnbsmallbusiness.com.au/FAQs/Will_my_personal_financial_history_affect_my_startup/indexdl_8685.aspx>; Veda, My Credit File for Business (2013) <https://www.veda.com.au/business/credit-risk-management/my-credit-file-business>.
 Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth) Sch 2.
 Office of the Australian Information Commissioner, Credit reporting – what has changed (June 2013) <http://www.oaic.gov.au/images/documents/privacy/privacy-resources/privacy-business-resources/Privacy_Business_Resource_3_Credit_Reporting_-_What_has_changed.pdf>.
 Australian Law Reform Commission, For your information: Australian Privacy Law and Practice, Report No 108 (2008) vol 3, 1799 [55.6].
 Privacy Act 1988 (Cth) ss 6N(b)-(c), 6(1).
 Privacy Act 1988 (Cth) ss 6Q(1)(a), (d)(i).
 Privacy Act 1988 (Cth) ss 6Q(1) 21D(3)(d).
 Privacy Act 1988 (Cth) s 6G.
 Veda, What looks bad on my credit report? (2013) <http://www.veda.com.au/yourcreditandidentity/check/credit-file/what-looks-bad-my-credit-report>
 Privacy Act 1988 (Cth) s 6V.
 Privacy (Credit Reporting) Code 2014 (Version 1.2) [8.1].
 Privacy Act 1988 (Cth) ss 20E, 21D, 21G.
 Privacy Act 1988 (Cth) s 20R.
 Veda, About us (2013) <https://www.veda.com.au/about-us>.
 Dun & Bradstreet, About us (2015) <http://dnb.com.au/about-us.html>; Experian, Experian receives regulatory approval to establish Australian credit bureau (3 August 2011) <https://www.experianplc.com/media/news/2011/experian-receives-regulatory-approval-to-establish-australian-credit-bureau/>.
 Privacy Act 1988 (Cth) ss 20T(1), 21V(1).
 Privacy Act 1988 (Cth) ss 20T(5), 21V(5).
 Paul Ali, Lucinda O’Brien and Ian Ramsay, ‘A quick fix? Credit repair in Australia’ (2015) 43 Australian Business Law Review 179, 180, 186–7.