With comprehensive credit reporting (CCR) becoming mandatory for the big four banks in Australia from 1 July 2018, there are a huge number of potential benefits for consumers to take advantage of. As well as there being plenty of benefits on offer, naturally there are some concerns about what CCR may mean for personal privacy and the availability of data, as well as how lenders may use the data in certain circumstances.
What are the Benefits of CCR?
Overall, CCR is seen as a positive move for consumers. Why?
CCR Will Highlight Good Credit Behaviour
CCR means that the big four banks have to report to credit reference bureaus what payments you have made, and whether you have made them on time. If you are a reliable payer, this will be highlighted on your credit report. Making your payments on time may enable you to access better credit deals, as lenders are more likely to offer you favourable deals if you are seen as a low risk borrower.
Recover Faster from Adverse Credit Events
Under CCR it may be easier to recover from adverse credit events, such as defaults.
For example, a default is required to stay on your credit report for a period of five years. However, if you received a default four years ago, and let’s say even that was because you moved out of a house share and forgot to take your name off a subsequently unpaid utility bill, that isn’t necessarily an indicator that you would be unreliable today. Thanks to CCR, lenders would be able to see that since this adverse event you have been making credit repayments on time, and thus be more likely to disregard an old default that isn’t really relevant or representative of your current credit usage.
With the current negative reporting system, a default on your credit history will often mean lenders won’t even consider you for credit for those five years.
Build a Credit History Quicker
If you are young or have recently moved to Australia, it can be difficult to access credit due to a lack of a credit history. Under negative reporting, it can be difficult to build a credit history due to the sheer lack of information made available. With CCR, you can demonstrate more quickly that you are a reliable payer, which may enable you to access different types of credit and higher amounts of credit more quickly, too.
CCR Is a More Balanced System
CCR is more balanced and transparent than the current negative reporting system:
- It helps those who are reliable with making their repayments, as lenders will have more visibility of their behaviour.
- It helps those who have had financial troubles in the past, as lenders can see they have subsequently been reliable and responsible rather than making decisions based on something that happened years ago. These consumers may be able to access credit easier than previously.
Consumers Can Get a Better Deal
More and more lenders will follow companies like NOW FINANCE in providing products and offers based on the perceived risk of lending to each specific applicant. CCR means that the information held at credit bureaus will be more complete, and with monthly updates being provided to the bureaus, having a positive credit history and being able to demonstrate responsible financial habits may, in the near future, become an important part of accessing the best deals and higher amounts of credit.
What Concerns are there Regarding CCR?
There are some concerns around CCR, mainly relating to privacy but also with regards to the availability of credit.
Privacy & Security Concerns
With more personal data being reported to Australia’s credit reference bureaus and being made public, it is crucial that all necessary security measures are in place to prevent fraud and consumer identity theft.
Could More Transparency Make it Harder to Get Credit?
Although it is seen as a positive that CCR will enable lenders to see a lot more information on consumers’ credit use, some fear that it could mean lenders are over-dependent on credit history when making a decision. It is possible, for example, that someone who has lost their job, been seriously ill, or experienced financial difficulty for other reasons through no fault of their own could miss out on credit due to having some recent missed payments on their file.
Companies Could Cash In – In More Ways Than One!
Some authoritative voices in the finance industry have spoken of concerns that CCR could be an opportunity for companies to cash in, in more ways than one.
- Consumer Action Law Centre Chief Executive Gerard Brody believes that some lenders may use the presence of negative information within CCR – such as missed or late payments – to provide expensive “priced for risk” products, citing credit cards with APR’s of 50% and the presence of what he called “toxic products” such as these already existing in the United States and in the United Kingdom, which are both countries that already utilise positive reporting.
- Karen Fox, of the Financial Rights Legal Centre, has spoken of her concerns that “more information means more mistakes” when it comes to credit reports, and anticipates an increase in the number of companies charging consumers for so-called “credit repair” services, which achieve little more than landing the consumer with a bill for thousands of dollars.
Are the Concerns Legitimate?
All of the potential concerns raised with CCR are legitimate, however from a consumer perspective, and regarding the things that consumers can control and influence, mandatory CCR should be a highly positive development and one that consumers embrace, in order to give themselves the best chance of accessing the credit they want at the best price, now and in the future.
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.