Answering common questions on credit reporting: part 1

Why was my client’s application for credit declined?

Firstly, there are many possible reasons for why your client’s credit application may have been declined. Each lender has its own criteria for lending, is subject to various regulatory requirements, and can assess applications on a range of different measures.

One reason your client’s application may have been declined is because of potential errors on his or her credit report. If your client checks their credit report and believe there is incorrect data, they should contact their credit provider or the credit reporting body (CRB) that issued the credit report. The credit provider or CRB are then obliged to investigate whether the information is incorrect and, if required, correct the information free of charge.

If your client decides to proceed with a complaint, tell them that they will get a written notice confirming that the credit provider or CRB they have contacted has received their complaint within seven days of making it, and will advise your client of the outcome within 30 days.

If your client is not happy with how their enquiry has been dealt with, they can always take their complaint to the external dispute resolution service of the credit provider or CRB, such as the Credit and Insurance Ombudsman or the Financial Ombudsman Service. Finally, if they are still not happy with this decision, they can make a complaint directly to the credit reporting regulator, the Office of the Australian Information Commissioner.

Incorrect information on your client’s credit report may be the result of fraud. For example, if your client has a default resulting from identity theft, this may be challenged and removed. In these cases, you should advise your client to be mindful that while a credit card or identity fraud incident is being investigated, a ban may be placed on their credit report to restrict access to it. If a ban is in place and they then make a credit application, this may be another reason why a credit application is declined.

If your client is a borrower who has had a few defaults or has less than ideal financial records, the move towards comprehensive credit reporting means they may still be able to prove their credit-worthiness over time. This is due to the progressive inclusion of positive repayment information in credit reports. For borrowers who have old defaults, this repayment history information may be able to demonstrate to a potential new credit provider that there has been a significant improvement in their payment behaviour.

Advising your clients to check their credit reports annually can help them avoid surprises when they apply for a home loan. They can get one free credit report annually from each of the credit reporting bodies – all of these are available at CreditSmart.org.au.