Once again, we sat down with Finance Specialist Terry Gardiner in order to provide you with the latest information on the implementation of Positive Credit Reporting.
Applying for a credit card, a loan or buying goods and services on credit? No matter who you are, your credit report can either make or break your application.
Let’s break it down from the beginning!
What is a credit report?
Whenever you apply for a loan or credit, providers will check your credit report. It’s created by a credit reporting body and documents your credit history e.g. how many times have you applied for credit and which loans were opened, your history of making repayments, defaults and how much debt you have available. Credit reporting bodies or credit providers may condense your credit report into a credit score. Your credit score compares you to other borrowers and assess your creditworthiness to help credit providers to decide who to lend to and how much to charge for interest.
What’s changed this year?
New credit reporting changes which commenced 1st July, 2018 provide a clearer picture of your credit history. These changes may make it easier for some people – or harder – to get credit or a loan.
As of 1st July 2018, recording positive credit information on credit histories is mandatory for all credit providers. This is intended to allow lenders to better assess this risk using a clearer picture on any potential borrower’s credit history. It could be beneficial for people who have the means to take on a loan, however, it could also reveal a few blemishes in the past such as one or two missed payments.
Negative credit reporting in Australia operated until March 2014, which was based around only making a note of negative credit events. Lender’s based assessments of a potential borrowing applicant solely on whether the applicant had any negative reports on the credit history, such as missed repayments.
Australia switching to comprehensive credit reporting (CCR) has brought a credit reporting system in line with other OECD countries, many of which have some form of positive credit reporting. It’s common practice in the USA and UK for consumers to use a positive credit rating as leveraging looking for a loan of any sort and CCR will potentially allow for Australians to do the same.
The system was originally recommended in 2014 and the Government subsequently imposed deadlines for CCR. The major four banks were required to provide 50% of the credit data to credit bureaus by July 2018 and 100% by July 2019.
Potential Benefits of Comprehensive Credit Reporting (CCR)
- Recent positive behaviour is registered which may balance out some previously negative slip ups.
- People with a very ‘thin’ credit file or a very short history of credit will now potentially have more information in their file concerning their creditworthiness which may make it easier for baked with then put it to them.
- The credit scores of individuals may not be significantly impacted by just one single negative event. Instead it will generally take the credit report listing repeated missed payments or a general pattern of credit stress to impact on an individual’s credit rating.
- An individual’s credit score or credit rating is potentially more accurate and comprehensive compared to a credit score that was constructed using negative reporting.
Potential benefits of CCR for lenders
- Having access to more comprehensive pictures of consumers and their credit related behaviour could support more responsible lending.
- Lenders can differentiate their products and offers using the new, comprehensive depiction of consumer credit worthiness and consumer behaviour in general.
- CCR allows lenders to identify credit stress or over-committal at a much earlier stage, potentially leading to fewer bankruptcies and financial stress.
What are some ‘positive’ things a customer could do to boost their creditworthiness?
- Pay your bills on time – always, and no exceptions. Direct debit is a great option to ensure timely payments with no room for forgetting. Remember both ‘good’ and ‘bad’ repeated behaviour is shared with the credit bureaus under CCR.
- Regularly check your details with the three credit bureaus (Veda, D & B and Experian). Consumers are entitled to a free copy of the credit file once a year and it is vital to check the accuracy of information. The report will list all credit enquiries current/past addresses any default/bankruptcies and in some cases, positive reporting data to.
Why do we think traditional lenders have been slower to implement CCR?
If you are a traditional lender, one of your major competitive advantages is your customer data, making this accessible to other lenders is not easy sell. No bank wants to make it easier for new innovative lenders to win market share. There’s also the argument that the banks own this data rather than the consumer.
How can consumers protect their credit report?
Your credit file is an incredibly important and valuable asset – identity theft (where a person uses your personal details to fraudulently apply for credit in your name) is a growing trend across Australia. Be aware of how much information you provide to social media websites (e.g. date of birth, addresses etc.) as well as taking care of physical ID’s like your driver’s licence as those details can aid fraudsters in assuming your identity.
Terrence Gardiner is a Credit Representative (No. 399006) of Money Quest Australia Pty Ltd, Australian Credit Licence 487823.