Clearing a default judgment off your credit file
So you want to buy a property but you’ve been denied a loan because you have bad credit? Or perhaps you haven’t applied for a loan yet and you just want to see what your credit rating is?
A few unpaid bills, that you may have thought remained locked away in your past, can come back to haunt you when you decide to apply for a loan for anything from a car to a house, and even when trying to obtain a credit card.
A credit provider, also known as a creditor (for example your electricity provider, telecomms company, or bank), can register the non-payment of your debt (known as a payment ‘default’) which remains on your credit report for 5 years. Even if you pay the debt within that time, it won’t be removed but the status will be updated to ‘paid’ or ‘settled’.
If the creditor decides to lodge a complaint to the court, then it becomes a legal proceeding which could end up as a ‘judgment’ being made against you. This also remains on your credit report for 5 years.
If you are disputing the debt, as you don’t think it was yours in the first place, or the debt collecting procedures undertaken by the creditor were incorrect, then you will need to provide proof of this.
For more information on defaults and judgments visit the LawAccess NSW website.
In many cases it is possible to clear defaults and judgments from credit reports.
The first step is to obtain a copy of your credit report. You are entitled to one free copy each year from a credit reporting agency. Visit the OAIC website for more information.
The next step is to collate all of the information regarding your default and/or judgment (this should be listed on your credit report, however if it is a judgment you could get further information from your local court).
You will need to speak to the creditor and organise to pay the debt. The creditor needs to then advise the credit reporting agency that the debt is paid and the debt’s status will be updated on your report.
Unfortunately, however, this may not mean you are able to borrow yet. Many lenders prefer you to have a clean credit record – meaning the judgment is cleared completely from your report.
There are some lenders who will still lend to borrowers with defaults and judgments, and even bankruptcies, but they will have higher fees and interest rates than their top tier counterparts. This is because these lenders need to weigh up the gravity of the borrower’s creditworthiness and then apply an interest rate and fees to match the risk. So even if you are unable to clear your credit report, there are lenders who can still help you, but it is more financially viable to first try to clear your report before borrowing.
To clear a default there are two common methods. One is to go through a default clearance company who will liaise with all parties to get it cleared for you. These generally cost around $1000 to $1500 per default and can take around 2 months to achieve. Some of these companies offer ‘no win no fee’ terms, but be careful as there are some questionable companies offering this. If you are unsure, we are more than happy to refer you to the reputable ones.
The second method is to do the whole process yourself. Firstly, determine whether you think the default is correct. If you don’t think it is, you will need to provide evidence to the credit provider as to why you believe you don’t owe them money. If they agree the default is an error, be sure to get that in writing and take it back to the credit reporting agency, and ask them to clear the default. If they state you still owe the money then they have to provide a reason and evidence as to why.
After this, if the default still remains, you can complain to an ombudsman or the Office of the Australian Information Commissioner (OAIC). Find out which ombudsman scheme your credit provider is a member of and visit their website to learn the application process to make a complaint. Or you can visit www.oaic.gov.au to learn about the Privacy Act and how to make a complaint there. Make sure you have worked through all of the other stages first as the OAIC may not hear a complaint unless you have done the work and are still in dispute.
If the file is a judgment default I have found the LawAccess NSW website excellent as it steps out the whole process.
Keep an eye out for dubious claims. Some businesses put these on your file without trying to contact you to resolve. There are services like Equifax and Credit Simple that will notify you when your report is checked, or something is listed on your report, so you can deal with it instantly.
In summary defaults don’t have to mean the end of borrowing to fulfil your dreams of buying a home or investment properties. However it can involve hard work, tenacity, and in some cases money, to get your report clear again. Be vigilant about what’s on your report so that you have the best chance of getting your finance application approved, and on the lowest interest rate possible. Good advice from a mortgage broker experienced in defaults will help you achieve and maintain good credit.
