Around five to six million Australians are in the 'credit dog-house' simply because they have applied for finance.

Most don't even realise until it's too late.

Like most, Jorg Both had no idea of the consequences in credit shopping and how it would have an effect on his credit rating.

• Truth in banking campaigns
• New credit card offers on the market
• Winners and losers of the interest rate balancing act

"I am extremely annoyed, simply by the fact that we've always conducted ourselves very well with paying bills, we've really got a good rapport with our banks. We were looking for the best quote and applied to five different banks. We went into the bank, filled out an application. We then went home and did the same with the online banking system," Both said.

Both couldn't get a loan. Eventually he went to a credit reporting agency, Veda, to get his credit file. He found out it was due to his enquiries and applications, all of which were listed on the file. It created black marks against him and gave him a bad credit score.

Today Tonight's latest bank stories

"There are no defaults, no judgement, purely a credit score that suddenly has gone into negative. Every time we applied to the banks, we were rejected and every time we enquired why we had been rejected, they wouldn't let us know," Both said.

John Dickinson, director of Clean Credit which repairs people's bad credit ratings says "in Australia, we have a negative reporting system. Our credit files don't report the good things, every listing is seen as bad."

"There's a massive difference between somebody sat on their couch one night and made a number of applications, to somebody who has legitimately not paid their bills, and yet people are treated exactly the same way by a credit provider. These people are potentially in credit prison for five years," Dickinson explained.

According to Dickinson, "as soon as they're hitting the submit button, that enquiry is recorded for a five year period."

More stories from reporter Helen Wellings

Graeme Taylor has never defaulted. Taylor applied for personal loans, credit cards and mobile phone deals over four years and that made prospective lenders see him as a possible risk.

"I was even rejected to switch over my electricity bill to a green electricity company. I've created a nice void in the credit file world and am unable to get any sort of credit," Taylor said.

According to Dickinson, there's no cure for people to have their credit file expunged. "Once people end up with this situation on their credit file, unfortunately they're going to have it for some time," Dickinson said.

However, there is a way around it. Belinda Diprose of Veda believes "the idea is to really do your homework before you make those applications."

It's not the credit reporting agencies that are to blame, they simply hold the records.

"It's the current legislation that only allows negative information to appear on our credit records and loan applications are listed as negative. Speak to your current lender, speak to other lenders, negotiate on the best rates before you actually put in your application form," Diprose advised.

Before going to a lender, you can check your credit file at My Credit File and you can even set up an alert service, so when making credit applications you get sent an email.

"I'm extremely disgusted with this whole affair. Warn your mortgage brokers about applications on your behalf, they can approach multiple banks on your behalf as long as they have your name, your driver's licence number, they can effectively create an enquiry on your credit report without you even knowing," Both said.

• VEDA Applied Intelligence - VEDA
• Apply for your credit file at -My Credit File
• Order or discuss your personal credit report - D&B Client Services
• Complaints -Financial Ombudsman Service

Got a story you'd like us to cover? Tell us about it here