Managing your household finances responsibly is important to maintaining a clean credit file, free of defaults. However, if you've had to juggle bills around when they all come in at once, remember that not every single unpaid bill will end up on your credit file.
When should you start to worry about a late payment?
When you borrow money for a home loan, car loan or personal loan, you are effectively agreeing with the credit provider to repay them over the term of the loan, at set intervals. If you pay your repayments late, not only will you incur more interest and potentially some late payment fees but you may also be affecting your credit rating. However, some late payments are considered minor and will not appear at all. Anything below $150 for consumer credit, will not affect you file (excluding a court judgement), and for higher amounts above $150, provided you pay these within 60 days, a default will not end up as a default on your credit file, but it could be recorded as a late payment.
If you run a business, the credit reporting guidelines are more strict with the quantum of the outstanding payment being reduced to $100, in contract to $150 for a consumer.
Also, when you run your own business you will have both a consumer and commercial credit file - be sure to monitor both files and have processes in place to pay your business invoices on time.
Late Payments versus Credit Defaults?
In the past, credit files were only updated for credit defaults, bankruptcy, and court actions like judgements and writs. Today, as the Australia credit reporting regime transitions to comprehensive credit reporting, lenders can now access additional information around the types of credit, limits and how often you pay your bills on time.
So whilst a late payment may not end up being a credit default it could still adversely impact your credit file. While one late payment is unlikely to damage your credit borrowing, consistent failure for forgetfulness even on these smaller bills could signal financial stress to a lender. This repayment history is only recorded for up to 2 years, however, so as long as you stay on top of things for that amount of time, your previous missed payments on your consumer credit file will eventually age out.
Small Bills versus Large Bills?
It's important to remember that in this digital world, small mistakes can have a lasting impact on your credit history.
It may seem like it is more important to focus on larger debts, such as your mortgage or business lending first, but historically Veda has found that consumers tend to default on smaller commitments first. Phone, internet, utility and credit card bills are the primary offenders, with a large number of people failing to or simply forgetting to pay them. Rather than get ahead on your larger bills, be sure that all your bills are up to date - large or small!
Whilst you may not need to borrow money today, being disciplined with paying your bills on time really matters when its comes to getting a mortgage for a home or investment property, or buying that boat you've always wanted.
If your credit history is not great, don't despair; AFS has specialty loan products that will help you to rehabilitate your credit rating.