How to remove credit defaults in less than 1 month
We are all young once, and in the process, may have done naughty things to our credit history.
Mostly, they're done through ignorance, as what better way is there to celebrate your first full-time job than with a credit card or a personal loan?
Unfortunately, many young people do not know how credit works in Australia. They damage their scores and rating and suffer the consequences many years later.
A low credit score (below 600) and reports littered with defaults are becoming more common in today's society, where there's an increasing focus on easy credit, such as buy now pay later products.
Fortunately, there are options to repair your credit if your file isn't as clean as you'd like it to be.
How to clean your credit file
As a finance broker, I'm lucky to work with and surround myself with experts and professionals.
One of them is a credit repair specialist. There are reputable credit repair businesses out there whose sole focus is to clean up applicants' score, remove defaults and set them up for the next stages of their lives.
In June this year, an applicant came to see me. She had 3 existing defaults and was facing a future where home ownership was impossible.
She was also knocked back by a Big Four bank for a pre-approval due to the defaults.
She had a credit score of 695 then, which honestly isn't too bad a score.
Working alongside the credit repair specialist, I helped the client remove all 3 defaults by mid-July, and did another soft credit check on the client.
The score had jumped to "good" credit score of 881, and in September we applied for a pre-approval, which was conditionally approved.
She was ecstatic.
But how does a person get a default?
And when does a credit repair specialist come in?
The journey to a poor credit file
When a consumer falls behind on their credit card or personal loan repayments, the bank involved will get their collections team to recover the arrears.
All lenders are legally obligated to assist consumers and provide some form of financial assistance for a short period.
Banks want to work with consumers, and as long as consumers meet the banks halfway, a default isn't likely to be issued.
But what happens when the consumers do not engage with the bank, even after the bank has thrown all the resources to legally collect the debt?
That's when a debt buyer (or creditor) comes in
Let's say a borrower's debt with Bank ABC is $10,000. The debt has remained outstanding and unpaid for 12 months.
The debt buyer purchases the debt from the bank for less than $10,000, at X.
The debt buyer then begins chasing you for the money, often negotiating a settlement payout, at Y.
The difference between Y - X = Z is how they make their money.
In this example, it might be:
- Debt is $10,000
- Debt is purchased for $1,000 (X)
- They negotiate a settlement with you for $4,000 (Y)
- $4,000 (Y) - $1,000 (X) = $3,000 (Z)
Along the process, ABC Bank issues a default against you. This stays on your credit file, damaging your score and affecting your ability to take out future credit.
The 5 creditors are usually:
- Credit Corp
- Lion Finance
- Pioneer Credit
- Panthera Finance
These are all very good and long-standing companies, and also very good at what they do.
Unfortunately, removal of defaults and improving your credit score and ability to borrow is not what they do.
That's where a finance broker, like myself, comes in.
I work alongside lawyers who specialise only in credit repair and who can help borrowers have their defaults removed in less than a month.
Yes, there's a cost involved payable to the credit repair specialists. But it can be a small cost compared to getting yourself back into the property market and setting up your future financial goals.
If you have a query about your financial score, report or have a default to be removed, why not reach out to your local broker?
John Ng is a finance broker and founder of Money Jar Concept and was named 1 of 20 Brokers to watch in 2022 by the Australian Business Journal.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.