How to preserve your credit rating
In many ways, credit scores can resemble those of former partners. When things end amicably, you go out into the world as better versions of yourself. But when it ends badly, the memory of those moments can follow you for years, as we recently saw in the NSW Supreme Court.
For those unfamiliar with the story, the problem first emerged last year when the Reserve Bank cut interest rates, which St George Bank then notified its customers about. In correspondence with a woman named Fiona Vinall, the bank said the reduced rate would mean the woman would pay $44.11 less in mortgage repayments “after July 10”. On the surface, this is a big money saver!
Unfortunately it wasn’t that simple. Vinall understandably interpreted the email to mean that any refund made during the month of July but after the 10th could be for the revised amount. However, according to St George, what they meant by “after July 10” was actually August 1. Therefore, the bank automatically determined one of the payments as open.
Although the bank quickly identified and corrected the problem, the two parties now find themselves in court over events that occurred in the few short weeks between the bank’s initial email and the refund of the missing $44.11.
In Australia, banks are legally required to report deficiencies to credit rating agencies within 14 days – even if it’s less than $50 for a loan literally the size of a house. This means St George reported Vinall’s underpayment as “negative repayment history information” and his credit score subsequently deteriorated. So much so that when he bought a new property months later, he could not settle due to his negative credit score.
When Vinall contacted St George and asked for the notice to be removed, the bank refused. But while many would have felt overwhelmed and thought they had no power against a major banking institution, he refused to lie down, took a huge risk and took legal action.
Always read the fine print, ask questions if you don’t understand what something means, and keep a record of all correspondence.
At the preliminary hearing in January, the judge decided that the black mark on the credit score should be removed by the bank. But this did not happen, probably because no one bothered to come on behalf of the bank and neither Vinall nor the court could contact them.
Then, at a hearing with representatives present in early February, the bank backtracked further and said it could not take back the negative credit information. They said the only thing they could do was to request that the credit agency they forwarded the information to update the information. However, when pressed, they admitted that they did not want this to be done.
Incredibly, the matter was only resolved when the court said the chief executive of Westpac (which owns St George’s) must appear in court and justify the bank’s actions. And incredibly, it managed to unravel in a few short days and over the course of a weekend.
Judge David Hammerschlag, who oversaw the matter, did not mince words in his ruling, saying the bank’s statements in its original email were “vague at best and misleading at worst.”
He also said it was “legally unfair and unethical” for the bank to refuse to resolve an issue involving such a small amount of money.
“Considering de minimis [trivial] the size of the deficit, the substantially unequal bargaining position of the parties, the perpetuation of profound negative consequences for the plaintiff of negative credit reporting… it was unreasonable not to take steps to delete the recorded incident.”
The good news for Vinall is that his previously positive credit rating has been reinstated and he has been ordered to pay Westpac’s legal costs. However, it would be naive to think that everyone will have such a positive outcome when it comes to credit score disputes and their long-term effects.
Let’s say, for example, you skip a few loan repayments in your early 20s because you’re busy having fun and prioritize travel or nights out over buy now pay bills later. Even if you come to your senses and change your ways, these decisions may affect you when you turn 30.
You may try to buy a car or your first home during these years. You may even want to apply for a credit card with a relatively conservative limit. However, if your credit score is negative, you may be in trouble.
This is because although most lenders report to credit agencies monthly, meaning your credit score is updated regularly, negative information tends to stay on your credit report for seven years.
So even if you have A+ habits for six years, those rebellious early years can linger and haunt you long after you break away from them and move on. The good thing is, the more positive money behavior you demonstrate, the better your score will be and the less risky you will be viewed by lenders.
However, if you are someone like Vinall who has incorrect information applied to your credit report due to a misunderstanding, it is crucial that the record is corrected as soon as possible. To me, his case highlighted three things we all need to remember when it comes to money and refunds.
The first is that you should always always pay on time. Whether that’s through setting up automatic withdrawals, paying a bill as soon as it arrives, or setting reminders, find a method that works for you and stick to it religiously.
If there are times when you cannot meet the deadline, call to discuss your situation and come up with a plan that is acceptable to both parties and outlined in your file.
The second reminder is to always read the fine print, ask questions if you don’t understand what something means, and keep a record of any correspondence or phone calls. Ideally, you’ll never need these, but if the day comes when you need to argue about something, you’ll be glad to have them.
Finally, if there is something you think shouldn’t be on your credit report, say something and keep saying it until the problem is resolved. As Vinall proved, it took him all the way to the Supreme Court to get the bank to give in, but he was ultimately cleared. That’s $44.11 well spent on my books.
Victoria Devine is an award-winning retired financial advisor, bestselling author and host of Australia’s #1 finance podcast. He’s after the money. He is also the founder and director of Zella Money.
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Victoria Devine is an award-winning retired financial advisor, best-selling author and host of Australia’s number one finance podcast, She’s on the Money. Victoria is also the founder and managing director of Zella Money.
