How to read a credit report

Mortgage brokers need to be aware that there’s far more to a customer’s credit report than the number of enquiries they have made or their repayment history information, says licensed credit repair specialist Victoria Coster.

“There are various data sets that go into a credit report,” said Coster (pictured above left), the CEO and founder of debt management firm Credit Fix Solutions. “For example, residential data, employment data that can affect the credit score. We’ve seen some credit reports affected by instability in employment.”

Coster said other information that was assessed included the length of the credit report. For example, some young people might have a credit report that was only one or two years old, meaning they would have a low credit score.

Negative data, such as defaults, court actions, bankruptcies and insolvencies, were also considered, in addition to repayment history and number of enquiries. 

Coster was educating brokers about credit reporting and credit scores during a recent MFAA webinar, titled Credit Reporting, How to Run an Effective and Client Centric Brokerage, which was hosted by MFAA executive, policy and legal Naveen Ahluwalia (pictured above right).

An award-winning entrepreneur who was honoured in MPA’s Elite Women list in 2023, Coster has 20 years of experience in the finance and credit repair industries, including 10 years working in mortgage processing and as a broker from 2002 to 2012.

Ahluwalia said Coster was recently awarded an honorary fellowship to the Commercial Education Society of Australia in recognition of her work in developing global higher education and subsequent service. 

In introducing Coster, Ahluwalia said the goal of Credit Fix Solutions was to offer finance brokers education on credit reporting and credit report repair services where needed.

It also helped clients by conducting default and court action removals, free assessments and educational credit reporting.

How to quickly read a credit report

Coster said while the webinar covered all the intricacies of credit reporting, the key takeaway she wanted for brokers was how to quickly read a credit report.

“As a broker, you have so much on your desk – you’re wearing 20 different hats, you're organising loans, you're speaking to clients, there's solicitors, there's real estate agents,” said Coster. “What do you do when it comes to credit reports? … how do you quickly scan a credit report?”

Among the different data that made up a credit report, sat negative data, such as  defaults, court actions, bankruptcies and insolvencies.

Coster said if a broker’s client was seriously overdue on a debt, such as a credit card, the credit provider would list that default on a credit report, which remained there for five years.

“Even if your client … pays the debt out, the default will still remain for five years – the same as for court actions.”

An example of a court action could be a propriety limited client that defaulted with a supplier. The supplier might not have the ability to list a default so the supplier drafted a statement of claim that was issued through their local civil registry (such as small claims court).

“If that's not paid within 30 days, they can then enter a notice of motion for default judgment. That is also called a court action,” Coster said. “You may see it on a credit report as a court action or default judgment. They’re on the credit files for five years, even if they’re paid out.”

Bankruptcies and insolvencies, actions which involved ASIC, were also featured on credit reports. Coster said even if these had occurred while clients were directors of previous companies, it would be linked to them on their credit reports.

One of the biggest challenges facing brokers’ clients is the 24 months of repayment history information (RHI), she said.

“It's causing a world of pain for a lot of families and consumers out there. At the moment we see maybe 20 to 30 credit reports a day and out of those probably around half to three quarters of them are just people who are missing repayments.  We can't really help fix that.”

Different credit scoring systems and companies

Coster said the different credit scoring systems provided by the three credit reporting bureaus (CRBs) – Equifax, illion and Experian – caused “so many headaches for brokers”.

The different scoring systems and CRBs include:

• Equifax Comprehensive Credit Score
• Equifax Score
• Equifax Negative Score Only – No RHI Financial Hardship Indicator
• Equifax Consumer Data Only – No Commercial Data
• Illion Comprehensive Score
• Experian Comprehensive Score

Coster said a broker had recently sent her two credit score reports covering a client – one was the Equifax comprehensive score and the other was the Equifax supply score. The difference between the scores was about 200 points and the broker wasn’t sure which score the lender would look at.

Coster explained that the comprehensive score provided data as to the consumer’s circumstances now, while  the supply score was a predictive score that used AI to identify where the consumer would sit in 12 months’ time. 

“Getting your head around which lenders check which score is very important. The Equifax negative score doesn’t include repayment history information. So some lenders won’t see if your clients have missed payments – as long as everything else is good on the report, then they’re good to go.”

Equifax provided a consumer data only score as well. Coster said she had seen cases where brokers just ran the consumer only data score and it was good – at 700 or 800 points.

“But then the client's gone and obtained the comprehensive score which contains all the commercial data as well and the score's lower because there's negative commercial data that's affecting that overall score.”

A broker in the webinar asked if ATO debts were included in credit reports, to which Coster replied, “Yes, they are”.

Due to the cost-of-living crises and higher numbers of businesses in debt, Credit Fix Solutions was noticing an increase in the number of ATO defaults on credit reports.

Coster said ATO defaults were only listed if they were more than $80,000 and the client was not in a payment plan – anything under $80,000 wasn’t listed. She advised brokers to encourage brokers to sign onto a payment plan.

Judging credit scores

Coster said it was good for brokers to know the range of credit scores and what was considered good, bad and average.

A fair credit score ranges from mid-500s to mid-600s. A good credit score is 670 to 750, while an excellent score is 800 to 850.

Coster said lenders offering highly competitive interest rates for home loans wanted clients to have a minimum credit score of 650.

“If you have a credit score that's a little bit low, but your client knows which lender and rate they want, we can potentially go in and remove some low-grade enquiries. It’s a very cost-effective way to get a little bit of a score jump of 100 points, 200 points..,” Coster said.

“We do a few … every week and we’ll get people from 550 to 700 and then off they go and get the best deal they possibly can.”

How do you educate your clients about their credit scores and reports? Comment below