Australia continues to move to a new comprehensive credit reporting (CCR) regime from 1 July 2018, which will be mandatory for the big four banks, and optional for other lenders. This is a significant change in how the big 4 banks and other lenders add and share information with regards to your credit report. Both lenders and consumers should benefit from this change. Lenders will be able to see a more accurate picture of your ability to make repayments and manage your credit, while consumers’ behaviour around these aspects should enable them to have more active influence over whether their future credit enquiries are successful. This change could be hugely positive whether you’re potentially looking at buying your first home in the next few years or may need to take out a loan or another type of credit to meet a different expense.
What is CCR?
CCR – also called ‘positive reporting’, the reason for which we will go into later – is the process of Australian lenders reporting additional information to Australia’s credit reference bureaus. The credit reference bureaus will then hold this additional information, so it is accessible when lenders need to access your credit report. CCR should allow lenders to build a more comprehensive picture of your credit history, and thus help them to make better, more responsible lending decisions based on your actual behaviour rather than by simply using your credit score.
CCR has actually been in place since March 2014, but was only optional for lenders. With initial implementation by Australian lenders low, on 2 November 2017 the government announced CCR would become mandatory for the big four banks from 1 July 2018. CCR is already a mandatory requirement in most of the 34 OECD (Organisational for Economic Cooperation and Development) member countries, bringing Australia in line with these countries.
This mandatory change to CCR requires the “Big Four” banks to fully participate in this reporting system. The government has legislated that the major banks must have 50% of their credit data “ready for reporting” by the initial launch date of the 1 July 2018. By 1 July 2019, 100% of this data must be available and be being reported.
What is Actually Changing?
Historically, Australia has always used what is known as a “negative reporting” system. This means that, along with your personal information and data that may be a matter of public record, such as your name, date of birth, and driving licence ID, your credit report would only contain information related to:
- Enquiries for finance
- Court judgments
- Any other serious credit infringements
Under this regime, it would be possible for you to have had a history of late payments and defaults from a few years ago preventing you from accessing credit in the present. While these may still have an impact on whether or not you can get credit, under CCR lenders will also be able to see whether you have been making consistent repayments since that time, and thus may take a different view of your application.
What Additional Data Will be on My Credit File?
Under CCR, your credit file may now contain information on your repayment history and your personal credit liability.
Repayment History Information
Information that will be visible on your credit file relating to repayment history will include:
- Last two years of repayments for your credit accounts. This will include credit cards, personal loans, your mortgage, and any other type of borrowing.
- Whether or not you made a payment.
- Whether the payment was made on time or how late it was made.
The final point is significant for consumers. There are likely to be many who pay late in the knowledge that late payments won’t usually be visible on their credit report unless they escalate to a more serious matter. Under CCR, consumers who ensure they pay on time stand to benefit.
Personal Credit Liability
As well as being able to see your personal repayment history, lenders will also be able to see:
- The types of credit account you have opened, the dates you have opened them and, if relevant, closed them.
- The name of the credit provider.
- The current credit limit on the account.
What Does This All Mean for Consumers?
What does lenders having a more comprehensive picture of your credit file mean for you, in practice?
As a Consumer, You Have More Control
While you are currently entitled as a consumer to ask for incorrect information on your credit file to be corrected, under CCR you have the opportunity to directly influence how lenders view you by ensuring you make repayments on time. CCR could also help young people to build a credit profile quicker, while also making it easier for anyone to recover from adverse credit events.
You Could Get a Better Deal on Your Personal Loan, Mortgage, or Credit Card
Although some lenders, including NOW FINANCE, long ago moved away from a “one rate for all” model for lending, CCR should ensure all lenders move towards this system to ensure they remain competitive in the consumer finance marketplace.
With positive aspects of your consumer credit behaviour being visible on your report, lenders can see that you represent a lower risk, and thus you will be able to access lower interest rates among some lenders.
Lenders Can Make Better Decisions, Which Also Protects You
As CCR will make more information available to lenders, this should enable them to make more informed decisions around credit applications. CCR could both lead to more applications being accepted while also reducing outstanding debts, defaults, and other serious credit infringements. Innovative lenders may also use CCR as an opportunity to introduce different types of borrowing or new credit products to consumers.
What are the Challenges of CCR?
From a consumer perspective, the only real challenge with CCR is to ensure that you’re making your credit repayments on time. If you’re something of a lazy payer then CCR may force you to be more organised if you want to access better credit deals in the future, but if you already make your payments on time you won’t need to change your behaviour, but can potentially look forward to seeing the benefits when you apply for credit in the future.
The real challenge of CCR is faced for the government, regulators, and lenders. Ensuring that CCR is implemented correctly, and ensuring the necessary action is taken if it isn’t, is likely to be the biggest issue for the government and regulators. The scale of the challenge presented for lenders by CCR will depend on how they currently operate. Those that have always operated in the “negative reporting” environment and undertook no voluntary implementation of CCR from 2014 to 2018 may find it complex, and expensive, to update their internal systems and processes.
Lenders who did opt-in to some or all of the voluntary elements of CCR, as well as those who have been preparing for mandatory CCR for some time, will find it much less challenging.
All in all, both lenders and consumers potentially stand to benefit massively from the correct and thorough implementation of CCR.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.