Schoolies across Australia are celebrating and looking forward to a bright future - but a consumer advocate for accurate credit reporting says that, when the good times are over, school leavers should prepare themselves for their new financial life as young adults.
CEO of MyCRA Credit Rating Repairs, Graham Doessel, says many young people amble through their early years with credit, making mistake after mistake that can cost them dearly down the track.
“Young people can often get into a really bad pattern with credit, taking out credit cards, putting cars and electrical goods on credit and getting behind in repayments which sees them taking out new credit just to pay off the old credit.”
Before they know it, he says, they’re 20 years-old and facing bankruptcy or Court Action and years of being locked out of the finance market right as they hit the years when they need it most.
He says young people need to understand their money and ensure they are making credit work for them. Below, he lists 5 important credit lessons for school leavers:
1. Your credit file follows you…everywhere in Australia.
Once you turn 18, you can become credit active, and can take out credit in your name. The history of your credit activity, good and bad, is detailed on your credit file, which can be accessed by those thinking of lending you money.
Your credit file lists personal details like name and address, but also any times you have applied for credit, any defaults (overdue accounts), court judgements, writs and bankruptcies.
This credit file stays with you for life, and is added to by creditors over the course of your lifetime.
2. Overdue accounts are considered bad credit history.
Many young people don’t realise how easy it can be to end up with a bad credit rating. Any account which is 60 days overdue (this ranges from mobile phones to credit and store cards, car loans to mortgages), is then considered in default. The creditor then has the right to list this default on your credit file.
Even too many credit enquiries can show negatively on your credit report, so don’t apply with too many lenders. By all means, do your homework, but don’t sign up or give over your details until you’re sure you want the credit.
3. Bad credit history matters.
A single default for as little as $100 can stop you from getting mainstream credit in the current market for the term of the listing, which is five years.
You may be forced to pay a whole lot more in interest to secure credit because of the risk of lending to someone with a bad credit rating.
Endeavour to pay all of your accounts on time. If you can’t pay, then contact your creditor to work something out. You have to think ahead about what you want to achieve in another five years and whether the choices you make now could hinder those future plans.
4. With all financial dealings, and especially credit – cover yourself at all times
If you’re dealing with a creditor in a tough situation, get the name of the person you’re dealing with, write down what is said and if a resolution is reached – get it confirmed in writing.
If you need to cancel an account, don't assume it’s cancelled until you receive written confirmation.
If you are moving, provide a forwarding address. This can be a common reason people get bad credit when they move – they may cancel a phone or electricity account and be left with a bill they weren’t aware of.
Protect your credit file from misuse by keeping your personal information closely guarded. Your personal information is the key to your financial identity.
At all times – online, while making purchases, while banking, you need to be aware of the ways your identity could be compromised. You may not have a lot of money in your accounts, but you may have access to credit and crooks can open accounts in your name and leave you with debts you can't afford and your financial future ruined.
5. You are responsible for the accuracy of your credit file
Creditors can and do make mistakes with credit files all the time, but the responsibility to ensure your credit file reads accurately rests with you. Make it a habit to check your credit file once every year. This is free to do annually. All you do is contact a credit reporting agency. They’ll mail you a report within 10 working days.
If you believe there has been a mistake on your credit file, then you have the right to have the mistake rectified. This may not be easy, but it is a point worth fighting for.