As the big four banks prepare to become compliant with comprehensive credit reporting (CCR) from 1 July 2018, and many smaller banks and other lenders prepare to follow suit voluntarily, many consumers are seeking information as to what information will be available and who will be able to access their credit report.
Research released by Experian in 2017 revealed that 70% of Australians were in favour of a move to a more comprehensive credit reporting system, although the same research also revealed that 66% had no idea what CCR was, or even that it had been optional for banks and lenders since March 2014.
We have explored what CCR is at length elsewhere across the NOW FINANCE Blog; this article will look at laws around credit reporting to highlight who will access your credit report, and how they may use it. We’ll also include some tips on what you can do to ensure your credit file highlights how reliable a borrower you are.
What are the Laws Around Credit Reporting?
How banks, lenders, credit providers, and other businesses use your credit information is governed by the Privacy Act, which highlights:
- Who can access and use credit reports.
- What information can be included on a credit report.
- How the information contained within a credit report can be used.
Consumers should note that the Privacy Act doesn’t just cover what you might consider to be traditional “credit” products like loans and credit cards, but also utilities providers.
Separately from the Privacy Act is the Privacy (Credit Reporting) Code, which provides more specific detailed legislation around credit reporting.
What Companies Use and are Able to Access Credit Reports?
Primarily, the businesses that access and use credit reports are those that you would expect to:
- Other money lenders
- Credit card companies
- Credit unions
- Other finance and credit offering companies
- Utilities providers
These aren’t the only businesses that provide ‘credit’. Others that provide ‘credit’ and may be able access credit reports include:
- Vehicle hire businesses. If you don’t pay some or all of the balance until you return the vehicle, you have been extended a line of credit for the duration of the hire, even if you have paid a deposit.
- Retailers who offer store credit or store cards, although usually they will offer these facilities through a separate credit provider who would be a traditional lender or finance company.
- Businesses that hire out any other goods, which may include household white goods, televisions, and musical instruments to give some examples.
Finally, there are some businesses that get involved in the application and process of providing credit but ultimately aren’t the credit provider. These include:
- Mortgage insurance providers.
- Credit providers’ agents that manage applications, this could include retail stores as detailed above.
As we can see from these points, there is a wide range of businesses that may need to access your credit report and CCR information.
How Do Providers Use This Information?
Most people are aware that they will be credit checked when they apply for a personal loan, or want to take out a credit card, or increase existing borrowing. Beyond this, there are several reasons why a credit provider may check your credit file:
- If your account falls behind and you stop responding to phone calls and letters, a credit provider may check your file to ascertain they have the correct address.
- If your creditor believes you may be experiencing financial difficulty, they might look at your credit report so they can help you to avoid defaulting. Helping you in this instance is part of a lenders’ responsible lending obligations. With CCR, companies will be able to see what your credit limits and balances are when checking your credit file prior to making a decision whether to accept or decline. This should enable lenders to make even better responsible lending decisions, reducing defaults, bankruptcies, and bad debts in general.
- Credit providers are also currently allowed to use your credit report for “internal management purposes,” which may include checking their credit acceptance process or anything else related to their business.
- Existing lenders could check your credit file if they are preparing to offer you a new product or service to ensure eligibility, although they will already hold your repayment data privately. Under CCR, your repayment information from the big four banks, as well as any other lenders that choose to participate, will be visible in your credit file.
- Credit providers are allowed to check your credit file, even if you are not an existing customer, to “pre-screen” you to check your eligibility for a product or offer they may be planning to send to you.
How Can I Use CCR to My Advantage?
By understanding what information credit providers will be able to see on your credit file, you can use CCR to your advantage to increase your chances of both being accepted for credit and of accessing the best deals.
- Ensure you make payments on time. The current negative reporting system means lenders can only see late payments, defaults, and other credit infringements. CCR means all of your payments for the last two years will be recorded, and paying on time will help to highlight how reliable a borrower you are.
- Use credit responsibly. With CCR, lenders will be able to see your credit limit and thus your exposure to debt. If you’re using credit cards and holding high balances on these, lenders will be able to see this and may decide you’re too high risk to accept an application for further borrowing.
- Keep your credit file active. Use small amounts of credit – using your credit card to pay for groceries and paying it off in full each month is a great idea – so that your credit file is active. Close any accounts you don’t use.
- Check your credit file regularly. You are entitled to see your credit score and credit report at no cost, once every 12 months. You can also subscribe to premium services with the credit referencing bureaus that include year-round access and alerts whenever information is changed or added to your credit reports. Under CCR the big banks will be obliged to update the information monthly, so you will be able to manage and ensure your credit file is correct like never before.
Use your knowledge of how lenders will use your credit file post-CCR and how to manage your own credit file to ensure you are always in a position where you will likely be accepted for credit at the best rates available.
There is more information on comprehensive credit reporting at CreditSmart.
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.