Cutting through the jargon: Credit 101
There’s no two ways about it, credit can be confusing. It also really doesn’t help that there are so many acronyms and jargon being bandied about.
Might as well start right at the beginning! In simplest terms, credit is borrowed money. When you pay with credit, your credit provider is lending you the money to pay for something. Then under the terms of your agreement, you are required to pay back the amount that you have borrowed plus any fees, charges, and interest.
When you apply for a credit product, a credit enquiry is recorded on your credit file by that credit provider. This can include any credit card, loan, or utilities applications you may make.
Each enquiry is added to your file regardless of whether your application is approved or rejected and whether you ultimately went ahead and signed up for the credit product. Credit enquiries stay on your file for five years and can affect your credit score.
More on credit enquiries.
A comparison rate is meant to be an all-inclusive interest rate to help compare loan products and indicates the true cost of the loan. It is effectively a rate that includes the interest rate on the loan plus any known fees and charges that you may need to pay to your lender during the course of the loan e.g. application fees and monthly service fees.
It is important to note that comparison rates do not include government charges such as stamp duty and mortgage registration fees or fees that are only charged when a specific event occurs such as early termination fees and redraw fees. For home loans, they are calculated on the basis of a secured home loan of $150,000 over a 25 year period
Comprehensive Credit Reporting (CCR) or ‘positive reporting’ is the term given to additional information being held on people’s credit files by Credit Reporting Bodies and includes your repayment history, open credit accounts and credit limits.
More on Comprehensive Credit Reporting.