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Using credit carefully 

As soon as you start earning money it’s a good idea to work out a budget.

Thinking of taking out a personal loan for a holiday, applying for a credit card, leasing a television or computer for a fixed period, or signing up for car finance?

The good news is you are covered by a law known as the National Credit Code.

What you need to know 

Before you borrow money, credit providers such as banks or credit unions must provide you with certain information. This is set out in what is called a pre-contractual statement and information statement. This information will tell you in plain English all the costs of the loan so you will know whether you are able to afford it.

Early payouts 

An early pay out fee may be charged in cases where a borrower pays back the total amount of monies owed under a credit contract, before the contract expires. This charge is most commonly found in home loan contracts.

An early pay out fee is charged by credit providers to help them recoup monies they would have received from interest charges, should the debtor have made payments over the complete term of the contract.

In order to charge an early pay out fee, the fee must be disclosed in the original credit contract, or the credit provider must have given the debtor notice in writing of the introduction of such a fee, in accordance with the National Credit Code’s provisions for notice.

Will I pay less interest if I pay out my loan early?

Yes, the interest charges depend on the actual time money is owing. However, you may still be up for an early termination charge and other fees if these have been spelt out in the contract.

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Can my contract be changed by my credit provider? 

Yes, but only if your contract specifies that it can be changed and tells you how you will be informed.

What happens if I have problems making repayments? 

The National Credit Code has provisions to help you if you are unable to make repayments due to temporary hardship such as illness or unemployment. Get in touch with your credit provider immediately if you think you may have a problem.

It may be possible for you to agree on an arrangement such as extending the term of the contract and reducing the amount of each payment, or to defer payments for a specified period.

If you are unable to reach an agreement, contact your credit provider's external dispute resolution scheme or a financial counsellor, or seek legal advice about how to apply to the court to have your contract changed.

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What happens if the credit provider asks for a guarantor? 

If a relative, friend or partner agrees to be a guarantor for your loan, it means he or she is guaranteeing to repay the loan to the lender. Being a guarantor is not to be taken lightly. It makes that person liable for your debts, if you default on the loan.

Under the National Credit Code, guarantors must be given a copy of the loan contract and a document explaining their rights and liabilities before signing a guarantee.

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Consumer credit insurance covers you in case you can’t make repayments because of unforseen circumstances, such as unemployment, sickness or injury. If it offered by insurance companies and the benefits and costs vary so it is a good idea to shop around. Credit providers can’t force you to take out this insurance. However, they can insist that you insure mortgaged goods against loss or damage (eg. comprehensive insurance on a motor vehicle). The insurance doesn’t have to be arranged though the lender as this can prove to be more expensive.

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Finance brokers 

The Consumer Credit Administration Act 2003 seeks to protect consumers who use the services of finance brokers to obtain consumer credit and housing loans for predominantly personal use.

The Act regulates the conduct of finance brokers by:

  • requiring records of transactions to be made and kept for seven years
  • requiring contracts to be in writing and signed by the person to be charged commission
  • requiring valuation fees paid by consumers to be held in trust and any balance remaining after payment of the valuer to be refunded
  • prohibiting the payment of commission before the credit is secured, or where the credit secured is for an amount less than specified, or on less favourable terms than those specified in the written contract
  • providing for consumer redress through the NSW Civil and Administrative Tribunal when excessive commission is charged  and
  • enabling disciplinary action to be taken by the Fair Trading for breaches of the Act.

If you are experiencing difficulties with a finance broker, we may be able to help you.

For more information, contact your nearest Fair Trading Centre on 13 32 20.

The Credit Ombudsman Service Limited may also be able to assist you in disputes with finance brokers:
Telephone: 1800 138 422
Postal address: PO Box A252, Sydney South 1235.

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Some tips about using credit 

As soon as you start earning money it’s a good idea to work out a budget. Make a list of your expenses on a monthly basis - rent, car, clothes, entertainment, telephone and other bills. Don’t forget to set aside an amount for saving. These total expenses should be less than your monthly income.

Setting out your finances in black and white is a smart move and makes it less likely that you will splurge on credit beyond your means.


DO pay your account in full each month whenever possible.

DO take advantage of any ‘interest free’ period.

DO use your card for purchases only, not cash advances.

DO use debit cards ie. where money is deducted straight from your bank account.

DO remember that the department store cards might have higher interest rates.


DON’T treat credit cards as ‘money on tap’.

DON’T buy something on credit that you wouldn't have bought for cash.

DON’T ignore the warning signs such as reaching your credit limit or needing to use your card for a cash advance.

Personal loans can be a good alternative to credit cards. The interest rate is often cheaper and encourages a more disciplined way of paying a loan if you're tempted to only pay the minimum required on your credit card account.

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Check your credit rating 

Credit reporting agencies hold information on an individual’s credit history. The type of information which may be held on an individual can include loan applications or enquiries made through member subscribers, late payment and default history and address and employment details. Credit reporting agencies may be able to check your credit worthiness and provided you with information on whether you have previously had problems repaying a loan.

To get a copy of your individual credit file, call one of the credit reporting agencies listed below or visit their website.

Veda Advantage Public Access
Telephone: 1300 762 207
Postal Address: PO Box 964, North Sydney NSW 2059.
Fax: (02) 9951 7880

Dun & Bradstreet
Telephone: 1300 734 806
Postal Address: PO Box 7083, Sydney NSW 2001
Fax: (02) 8270 2866

The Federal Privacy Act 1988 contains strict safeguards for the handling of people’s consumer credit information by the credit industry. These provisions recognise the sensitivity of credit worthiness information and the implications should it be mishandled. 

If you believe a listing with one of these credit agencies is incorrect, the Federal Privacy Commissioner may be able to assist:
Tel: 1300 363 992
Postal Address: GPO Box 5218, Sydney NSW 2001.

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