Many people don’t understand how their credit scores are calculated and what goes into them. In Australia, a debt collector can indirectly influence your credit score, although they cannot directly modify it themselves.
What is a debt collector?
If a creditor is unsuccessful in contacting you about outstanding debt, they may hire a debt collector. The collector will try to reach you by phone or in person. If they cannot get through to you, they can report back to the creditor and the credit reporting agency, that you have defaulted on payments.
Impact a debt collector can have on your credit score
Debt collectors do not have the authority to directly change your credit score. Credit scores in Australia are calculated and maintained by credit reporting bureaus such as Equifax, Experian, and Illion. However, the actions taken by creditors and debt collectors can indirectly impact your credit score in several ways:
- Late payments: If you are more than 14 days late in making a repayment, the lender can report this as a ‘late payment’ to credit reporting bureaus. Late payments can negatively affect your credit score and remain on your credit report for up to two years.
- Credit defaults: If a payment is more than 60 days overdue and exceeds $150, the credit provider can report a default against your credit file. Defaults can significantly harm your credit score and stay on your report for five years.
- Court judgments: If a debt collector obtains a court judgment against you, it will be recorded by credit reporting agencies as a default on your credit report. This can severely impact your credit score and affect your ability to obtain loans or credit cards in the future.
All of the above actions from a debt collector (or the creditor themselves) will have a negative impact on your credit score in Australia.
How to protect your credit score from debt collectors
Always communicate with your creditors if you cannot make a payment. If they cannot reach you, they can report it as a major credit infringement against you, which could negatively affect your credit score for years to come. Creditors may also take legal action against you, and if there is a court judgment against you it will most likely have an severe impact on your credit score as well.
To minimize the impact of debt collection on your credit score you should also:
- Respond promptly to debt collectors and don’t ignore their communications.
- Negotiate repayment plans or hardship arrangements with creditors before accounts are sent to collections.
- Regularly check your credit report for accuracy and dispute any errors.
Keep in mind that debt collectors are subject to strict rules and may not harass you by calling or coming to your home repeatedly, or by implying that they will take your stuff if you don’t pay.
