From 1 July 2018, Australia’s big four banks must implement comprehensive credit reporting (CCR). In addition to CCR being mandatory for the big four, it is likely that increasing numbers of smaller banks and other lenders will also voluntarily embrace CCR, as some, including NOW FINANCE, have already done so.
What is CCR and What is Changing?
At present, Australia operates with a “negative reporting” system. This means that, along with your personal information such as your name, address, and driving licence ID number, defaults and other serious credit infringements are reported and visible on your credit file. With CCR, the big four banks, and other lenders who choose to participate, will have to provide a more comprehensive range of information, including:
- Your last two years repayment history for most of your credit accounts, including credit cards and personal loans.
- Your available credit limit.
- Account opening and closing dates.
What Does This Mean for Me as a Consumer?
In short, it means that you are given more control over whether lenders see you as being “credit-worthy” or not.
Dealing with Adverse Credit Events
Under the current reporting system, you could find yourself with a “black mark” on your credit file because you missed one payment, or because you got a default a few years ago for something as innocuous as moving house and forgetting to take your name off the utilities accounts. While these are still relevant credit events and will still be looked at by lenders, because CCR means your credit file will show the last two years of repayments, if you’ve kept your accounts up to date and paid your bills when you’re supposed to, you have a better chance of being offered credit even if you do have some adverse history.
Rebuilding Your Credit File
If you have had more than one adverse credit event in the past, CCR could still be beneficial for you. As the credit referencing bureaus will have far more information available, which will be updated monthly, it will be simpler than ever before to rebuild your credit file with favourable data. Rebuilding your credit file won’t happen overnight, but you will at least have the opportunity to demonstrate good behaviours that in time will make it easier for you to get a better deal when you apply for credit.
Building Your Credit File from Scratch
CCR will also help young people or recent permanent arrivals from overseas to establish a credit history quicker. Under the current negative reporting format, it can be very difficult for consumers who are part of these demographics to acquire credit, or access higher monetary amounts or the best deals, for many years, as it isn’t clear to what extent they are a reliable payer. With the information that will be visible on credit reports post-CCR, there is a much greater opportunity for these consumers to build a credit history and access better deals quicker.
How Can I Improve My Credit History Post-CCR?
How can you improve your chances of being accepted for credit or accessing better deals post-CCR?
The first thing is to ensure you don’t wait until 1 July 2018 to change your behaviour. While CCR is only mandatory for the big four banks, according to Equifax 24% of lenders are currently sharing comprehensive consumer credit data. NOW FINANCE has shared two years’ worth of repayment history information for our customer accounts with credit bureaus, and will be sharing comprehensive reporting shortly.
If you’re looking to rebuild your credit history, or simply want to improve your credit file to enable you to access better credit deals, look to do the following.
Pay Your Bills On Time
Under the current reporting regime, late payments won’t always appear on your credit file. CCR means your credit file will include payment dates and whether payments were made on time. As a result, ensuring your bills are paid on time is a great way to demonstrate to prospective future lenders that you are likely to be a reliable borrower.
If you’re something of a lazy payer and often pay bills a day or two late, get into the habit of paying your bills on time now. Set up direct debits to ensure bills are paid if you haven’t already done so.
Be an Active Credit User
To be able to demonstrate that you are credit worthy, you need to be an active credit user. Even if you have experienced financial and credit difficulties in the past and only have access to a few hundred dollars on a credit card, use a small portion of your available credit and pay it off in full each month to demonstrate you’re able to manage credit successfully.
If you have a default from a couple of years ago, the best way to get lenders to look past this and still consider you for credit is to ensure you are actively using credit and demonstrating reliability, rather than doing nothing at all.
Ensure You Check Your Credit Report
With more information going to be present on your credit report than ever before, this also means an increased likelihood that there could be errors in the information. Usually, it will be sufficient for you to check your credit report once a year, which you are entitled to do at no cost, and correct any errors you find. An alternative option is to subscribe to receive activity alerts from a credit reference bureau, so you can check any new information as it is added and quickly resolve any issues should there be potential fraudulent activity and attempts to obtain credit in your name.
Use CCR to Help You Recover and Build
Follow the tips in this article and take advantage of everything you can do to make yourself more credit-worthy, and able to obtain the best credit deals, in a post-CCR world. Even if you are not a customer of the big four banks, many smaller banks and other credit providers are likely to follow suit with CCR and voluntarily participate, meaning more of your data will be available on your credit file.
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.