Do fines affect your credit rating?

Have you been hit with a fine? You may be curious to know whether a fine will be recorded on your credit history and if it could affect your credit score.

Your credit score is a number that indicates your creditworthiness to banks and lending institutions, particularly around whether or not to approve you for lines of credit, such as a credit card.

While there are a range of factors that may affect your credit score, one that is discussed much less than late payments and defaults is the risk of unpaid fines.

So, do fines affect your credit rating? One fine may not, but multiple fines could lead to issues for your personal credit.

In the past, fines definitely made more of an impact on your credit score. However, in February 2020, regulatory changes were made by the OAIC that means writs and summons are no longer considered publicly available information, and cannot be listed on credit reports.

This doesn’t mean you should not pay your fines though, because there are obvious legal and financial implications you need to worry about. Having multiple unpaid fines can indicate a history of poor payment behaviour, which could be reflected in your credit history and credit score.

Additionally, having one or multiple fines or demerit point losses is likely to impact your insurance premium. This kind of behaviour can result in insurers hiking the cost of your premiums to mitigate the higher risk you pose the insurer.

What factors negatively affect your credit rating?

A low credit rating can spoil your financial plans as it earmarks you as a potential risk for default for Australian credit providers. While nobody tanks their credit score on purpose, occasionally, they end up doing something that damages their credit rating without their knowledge.

These are some of the most common factors that negatively affect your credit rating:

Multiple loan applications and rejections

Whenever a credit card or loan application is made, it is officially documented by the bank or lending institution in question. Lenders will perform a hard credit check on you as part of their eligibility criteria, and any hard credit checks will be noted on your credit file.

For future credit applications, even if you attempt to pursue a new lender, past rejections could pose problems for you. While rejections don’t directly result in your credit rating being affected, making multiple applications in a short period will mean more hard inquiries on your credit score, which can reflect negatively on your credit rating.

Late payments

If you are late to making repayments, of any size, on your credit products or utility bills, the lender can report this behavoiur to credit reporting bureaus. Late payments (missed payments exceeding 14 days due) can hurt your credit score, and can remain on your credit report for two years.

Defaults

If your late payment exceeds 60 days and the overdue payment exceeds $150, the credit provider can report a default against your credit file. There are additional criteria that must be fulfilled by the creditor before doing so, but a default on your credit file can significantly hurt your credit score. It can remain on your report for five years.

If you are considering applying for any new credit products, particularly if you have unpaid fines, consider taking stock of your credit score first as a precautionary measure. If your credit score is lower than you expected, you may be able to work to boost your credit score and avoid being rejected for this credit product.