What Is The Purpose Of a Credit Report?

We've all heard of a credit report, but what does it mean and why is it important?


Credit providers will check your credit score when you apply for a loan or a credit line. Your credit profile is a document maintained by credit bureaus and used by credit providers to establish your credit history and includes details like how many credit cards you have, how much credit you have and how much debt you have.
You may see a change in your credit score whenever new information is added to your credit report over time. Credit reporting agencies and credit providers can review this data to help them make informed decisions in your loan application. With more information about your payment history, credit providers can tailor the credit offers you seek to meet your individual needs and circumstances. This is good for those with limited borrowing histories as they may be able to find a plan with repayment terms that don’t strain their financial capacity. Thus, you will be less likely to take more credit than you can afford.
Monitoring your credit consistently is a good discipline to stay on top of your finances – luckily, this has been made more accessible for Australian consumers. Credit reporting systems in Australia are regulated by the Privacy Act Part IIIA and the Credit Reporting Code. These legislative measures entitle individuals to receive free credit report access every three months, within ninety days of being denied credit, and after a correction has been made to their credit information. By keeping track of what appears on your credit report and what information credit providers have access to, you are better equipped to make wise financial choices.


Better credit evaluation


Credit reporting isn’t all about recording negative behaviours such as defaults, arrears, or serious credit infringements. As a result of recent Comprehensive Credit Reporting (CCR) reforms, many lenders now see positive information such as timely payments on your loan accounts (e.g., credit card, home loan, personal loan). Lenders with access to CCR reports can also see good habits such as applying for credit from reputable sources and steering clear of short-term loans or deals like buy-now-pay-later services. Such display of best practices can help make your credit report appear more reliable and help affirm your sound financial management.
For example, if you are having difficulty paying your bills or are unable to meet a payment deadline, you may be concerned that this oversight could negatively impact your credit score. With CCR, your credit status won't necessarily be determined by one missed payment; instead, your credit providers can also look at how you paid your bills over the past twenty-four months, as well as whether you made your repayments on time. One missed payment may not negatively affect your credit score. However, several late payments or a missed payment that ends up as a default could indicate that you are under financial stress, resulting in bad credit history.
It's important to remember that the longer you maintain a good credit history, the easier it will be for lenders to make accurate and informed decisions about your credit.


Better financial management


Contrary to what you may think, checking your own credit report will not, in any way, negatively affect your credit rating – at least not with GetCreditScore. There are two types of credit enquiries: (1) a hard enquiry, which occurs when a lender requests your credit file to determine your creditworthiness as part of a loan application, and (2) a soft enquiry, which occurs when you initiate a credit report request for yourself.
You might notice a negative effect on your credit score from hard enquiries, but soft enquiries do not have an impact. Checking your own credit report and monitoring your credit score is actually good credit discipline and can help your credit score improve. It allows you the opportunity to review the key contributing factors that may be negatively influencing your credit score, thereby allowing you to take appropriate actions to help improve your score.
If your credit report contains any discrepancies or inaccurate information, credit providers and credit agencies are obligated to help you rectify it. Once you have identified an error on your credit report, you can raise a correction request with your credit provider or a credit reporting body such as Equifax.
In addition, Part IIIA of the Privacy Act protects consumers against the unpermitted disclosure of their credit report information, so you can have peace of mind knowing that credit providers won’t misuse the information you provide (as doing so could land them with significant fines). Credit providers also cannot use consumer credit reports for marketing and promotional purposes, nor can they market services or products to you based on the information you have provided on your report.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser. The score is based on the Equifax score. Some credit providers may not use this score to assess credit worthiness.