Need to know
- People should access their free credit reports once a year, but very few do
- CHOICE accessed 27 reports from Equifax Australia; many were either surprising, confusing, incorrect or all three
- A massive data breach by Equifax US is cause for concern
You may not realise how much power credit reporting bureaus have over your financial life, and you may not know how to read a credit report.
But don't feel left out.
Most Australian citizens and residents have never accessed their credit report, even though we certainly should.
And, in case you didn't know, we're entitled to a free one every year.
In theory, our credit reports contain information that reflects our 'creditworthiness'. Banks and other lenders will take a look when we apply for a home loan, credit card or any other loan.
If they don't like what they see, they probably won't extend your credit, which can really foul up your plans for the future.
Credit reports may be useful for banks, but how useful they are for consumers is another question.
According to the Credit Reporting Code, credit reporting bureaus are obligated to "present the information clearly and accessibly and provide reasonable explanation and summaries of the information to assist the access seeker to understand the impact of the information on the individual's creditworthiness".
Yet, for those of us who don't work in financial services, these reports can appear to be written in code, even though they're supposed to be perfectly clear to the people whose information they contain.
What look like mistakes may just be entries you don't understand. And yet the contents of these reports can have a really big impact on our lives.
Overall, about one in four Australians have concerns about their credit rating according to a recent nationally representative survey conducted by CHOICE.
And although we're entitled to a free report every year, one in eight people who have accessed their report paid for the privilege – with almost half either being told they had to pay, or unaware that it should be free.
One in three Australians don't understand how credit reports work or what they mean, and 68% of us have never seen our credit report.
Meanwhile, credit reporting bureaus have been raking in the profits in recent years, benefiting from a hot housing market, and a general increase in lending and household debt. (More household debt means more credit checks, which is one of the services potential lenders pay credit reporting bureaus for.)
In fact, the industry is currently generating about $727 million in annual revenue, and about $166 million in profit.
In the case of Australia's largest consumer credit reporting bureau, Equifax Australia (formerly Veda), adherence to the Credit Reporting Code – on the point of clarity at least – appears to be pretty spotty.
And its lack of adherence seems like a pretty big deal. The company has an 85% share of the consumer credit reporting market and says it holds data on 19.4 million individuals.
It's an industry that's been built on business-to-business relationships, even though it's based on consumer data
But Equifax may not be alone in providing credit reports that defy comprehension.
ID Care is a nonprofit that helps Australians deal with identity theft – which is often discovered through credit reports. As managing director David Lacey puts it, "it's an industry that's been built on business-to-business relationships, even though it's based on consumer data. The reports are not really designed for consumers to readily understand".
Lacey describes getting hold of and understanding credit reports as a process "subject to a lot of friction", even though they're "front and centre" when it comes to identity protection.
What's more, credit reporting bureaus can and do make mistakes.
When a credit reporting bureau hands over incorrect information to a potential credit provider about your credit history, your application can be knocked back.
Or you may be approved but have to pay a higher interest rate – whether the information on your report is accurate or not.
And if you find the time and energy to try to get a mistake fixed, there's a good chance you'll end up in a runaround between the alleged creditor and the credit reporting bureau – both of which bear some responsibility to make sure the information is accurate.
As part of this investigation, 27 CHOICE staffers got hold of their free credit reports from Equifax Australia to check for any mistakes or surprises.
Eighteen of them said their reports either had errors or entries that were surprising and confusing.
18 CHOICE staffers had reports with errors or entries that were surprising and confusing
For a number of staffers, credit cards that were no longer in use were still listed, active credit cards were not listed, home loan figures didn't reflect the amounts paid off, and active home loans were not listed at all.
We contacted Equifax Australia about these issues. The company explained that the confusion could be because:
- the credit provider hadn't shared the information with them
- inactive credit cards stay on credit reports for two years
- any application for credit stays on reports for five years (whether or not it's been approved or paid off)
- home loans don't show up if they're taken out more than five years ago.
Also, according to Equifax, outstanding home loan balances aren't allowed to be listed.
Aside from these surprises, other entries looked like unequivocal mistakes, such as:
- a misspelt surname
- a wrong birthdate
- wrong previous addresses
- incorrect credit card details
- a home loan inquiry that the consumer never actually made.
Equifax didn't address our questions about these issues, except to say misspellings could be the fault of the credit provider.
A credit provider can knock back your loan application based on incorrect information about your credit history.
It gets worse. Without any explanation, six CHOICE staffers were informed they'd failed to meet Equifax's "security and verification requirements" after giving their date of birth, driver's licence and Medicare numbers.
Equifax then asked them for a copy of their driver's licence, a copy of their birth certificate or passport, a list of previous residential addresses and a rates notice, utility bill or bank statement in their name.
Several of our staffers decided that giving away such a trove of private information to a bureau already proven to be error-prone was too risky.
The fact that Equifax Australia's parent company in the US (Equifax) suffered a massive data breach in 2017, when the sensitive personal information of 143 million Americans was hacked, probably didn't help.
Equifax in the US suffered a massive data breach in 2017, when 143 million Americans' data was hacked
The hackers got their hands on people's names, social security numbers, birthdates, addresses and, in some cases, driver's licence numbers. All in all, they stole the credit card numbers of about 209,000 people.
But security is only a part of it. Aside from keeping your information safe, credit reporting bureaus are required to correct any "out-of-date, incomplete, irrelevant or misleading" information on request within 30 days. But many consumers have difficulty knowing when to make such a request.
Equifax says it "takes reasonable steps with respect to the accuracy of the personal information it holds" – a less than iron-clad guarantee.
Equifax Australia is expected to rake in about $321 million in 2019, according to research firm IBISWorld. But the company's quest for profits recently landed it in hot water.
In October 2018, the federal court ordered Equifax Australia to pay $3.5 million in penalties for violations of Australian Consumer Law around "misleading and deceptive conduct" and "unconscionable conduct".
Over a two-year period, Equifax told consumers its paid credit reports were more comprehensive than its free ones.
But, in fact, the information was the same in both. ACCC Commissioner Sarah Court put the matter plainly: "Consumers have a right to receive accurate information from credit reporting companies when they seek advice or services."
Equifax told consumers its paid credit reports were more comprehensive than its free ones.
But the information was the same in both
Maybe it's not surprising, then, that nearly as many people paid for their Equifax reports in 2017–18 as accessed them for nothing.
Then again, only a tiny fraction did either. Of the 19.4 million individuals Equifax has credit data on, only 1.27% accessed a free report and 1.003% paid for one in 2017–18.
Mistakes can and do happen – as the below case studies demonstrate. There are three steps you may need to take if you find an error on your credit report.
More information, more confusion
Equifax Australia general manager Matthew Strassberg admits that credit reports can be hard to unpick, especially in the world of comprehensive credit reporting.
"The 2012 changes to credit reporting added new complexity levels to an already challenging topic," he tells CHOICE. "That is then reflected in consumer credit reports, particularly an Equifax report, which has many thousands of credit providers reporting information to us.
With credit providers supplying repayment history information on personal loans, credit cards and now mortgages, we recognise more needs to be done ...Equifax managing director Matthew Strassberg
"With credit providers supplying repayment history information on personal loans, credit cards and now mortgages, we recognise more needs to be done and improvements will roll out over the next 12 months."
The 2012 changes Strassberg refers to were introduced on a voluntary basis in March 2014, and made mandatory in July 2018.
Under the new regime, you can get a black mark on your credit report if you're more than 14 days late with a payment for a credit card, home loan, personal loan, or buy now/pay later scheme. Your payment history is also recorded.
If you're more than 60 days late with a payment of $150 or more, it will count as a default.
Before this change, you had to fail to pay a bill altogether, or go bankrupt, to be flagged as a credit risk.
The Office of the Australian Information Commissioner (OAIC), which oversees the credit reporting industry and monitors its adherence to the Privacy Act and Credit Reporting Code, tells CHOICE, "the credit reporting provisions regulate the collection and handling of certain narrowly defined categories of credit-related personal information by credit reporting bodies, credit providers and other recipients. They do not specifically regulate the format of the report itself".
Credit reporting bureaus must take "reasonable steps" to ensure your record as a borrower is accurate and up to date – and take reasonable steps to fix it if it's not.
Complaints about credit reporting bureaus went up during the last financial year
But the reasonability standard may not be working. Complaints to OAIC about credit reporting bureaus went up during the last financial year. In 2017-18, it received no fewer than 173 complaints, mainly about the quality of credit reporting information, correction requests, and access to credit reporting information. That seems like a lot of complaints for a service that most of us are barely aware of.
According to OAIC's complaint escalation protocol, that would mean consumers had failed in their attempts to sort out the issue with the credit reporting bureau, credit provider and other external dispute resolution services (such as the Australian Financial Complaints Authority).
Credit reporting bureaus have an obligation to help us understand what they say
Although the format of reports is unregulated, Australian information and privacy commissioner Angelene Falk tells CHOICE that credit reporting bureaus have an obligation to help us understand what they say.
"Credit reporting bodies like Equifax, Experian and Illion are entrusted with vast amounts of our personal information," she says. "In return, they must take steps to ensure the information they hold is accurate, up to date and secure.
"I also expect these organisations to support consumers in understanding the information they hold about them, and how it may affect decisions about their ability to borrow money."
Credit reporting bodies ... are entrusted with vast amounts of our personal information. In return, they must take steps to ensure the information is accurate, up to date and secure.Australian Privacy Commissioner Angelene Falk
Equifax Australia does provide some explanatory material on the actual reports and has an FAQ section on its website. But nothing in the material would have eased the bewilderment of our staffers – and of Australians in general.
Looking to finance a new car? Probably a good time to access your credit report to make sure it's accurate.
OAIC says – get involved
Commissioner Falk says consumers should get hold of the financial information credit reporting bureaus have on them.
"I strongly encourage people to make use of their free access to their credit reports and check for any mistakes," Falk says. "Where information about them is inaccurate, incomplete, irrelevant or out of date, they should contact the credit reporting body to request a correction.
I strongly encourage people to make use of their free access to their credit reports and check for any mistakesAustralian Privacy Commissioner Angelene Falk
"Where consumer complaints are not resolved by the credit reporting body or an external dispute resolution scheme, my office can help. Last financial year we helped hundreds of people with complaints about credit reporting issues. Outcomes achieved for consumers include corrections of credit reports and, in some cases, compensation."
And the OAIC is willing and able to step in when necessary, Falk says. It has the power to investigate, order compensation and issue fines.
"Where we're made aware of a credit reporting body failing to comply with the rules – including their obligation to present information clearly and accessibly, and provide reasonable explanation and summaries – we may initiate our own inquiries."