Negative vs. Positive Credit Reporting

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From 1 July 2018, comprehensive credit reporting (CCR), or “positive credit reporting”, will become mandatory in Australia for the big 4 banks. They will require 50% of their consumer data “ready for reporting” by this date, and have until 1 July 2019 to achieve 100% compliance.

What is CCR and its Background?

CCR means that lenders are obligated to share more of your data with credit reporting bureaus, who in turn will hold that information on your credit file and share it with lenders when you make a credit enquiry.

Although CCR has actually been in place since March 2014, implementation was slow for various reasons, including:

  • From March 2014 CCR was a voluntary initiative.
  • Banks found switching to CCR complex and expensive, and unnecessary given it was not mandatory.
  • Some banks’ systems were set up for sharing data privately, but not publicly to credit reference bureaus.
  • Banks treated consumer data as an asset in itself; if only your bank knew certain things about your repayment habits, they’d be in a stronger position than anyone to offer you a relevant product or offer based on your circumstances.

Research conducted by Experian in the winter of 2017 – before the Australian government announced on 2 November 2017 that CCR was to become mandatory for all – highlighted that 70% of Australians were in favour of CCR, despite only 34% knowing what CCR was and how it worked!

What is Australia’s Current Credit Reporting System?

Australia currently operates using a “negative reporting” system. This means that only personal information and negative credit information is held on your credit file.

What Information is Held?

The following personal and negative credit information is currently held and visible to lenders on your credit file:

What Information Will Credit Reports Now Include?

From 1 July 2018, the big four banks will be required to share much more information with credit reporting bureaus. Specifically, positive information about your consumer credit habits and behaviour will be included. There will be two new sections, for repayment history information and for your personal credit liability.

The specific areas that will be included are explored below.

Repayment History Information

  • Your last two years of repayment history for some of your credit accounts, including your home loan, any personal loans, and any credit cards you have. This will allow prospective lenders to ascertain whether you are likely to be a reliable payer.
  • Whether the payment was made on time. There is a positive aspect to paying on time, as lenders will be able to see this.

Personal Credit Liability

  • The dates credit accounts were opened and closed for some of your credit accounts. This will help prospective lenders to get an idea of how much credit you have access to at a given time, how you use credit, and of your potential exposure to debt. You may not have much debt and be a low risk borrower today, but lenders may be wary if you have $10,000 of unutilised credit elsewhere, for example.
  • The different types of credit you have access to. It may be beneficial to be able to demonstrate management of a diverse range of credit products.
  • The names of your credit providers.
  • The current credit limit on your accounts. Again so lenders are able to see your current exposure to debt and assess the potential risk attached to lending to you. If you manage your use of credit carefully this could again help you to be accepted for different credit types, or larger amounts of cash for home or personal loans, in the future.

The below table highlights the differences between the current negative reporting regime and CCR.

We will now look at a couple of case studies that demonstrate how CCR could help consumers get credit easier.

 

Negative vs. Positive Credit Reporting

Positive credit reporting, or CCR, is a fantastic opportunity for consumers to ensure their use of credit gives them the best opportunity of being accepted for a loan, credit card, or any other type of credit, the next time they need to apply.

Consider how you can change your behaviours and credit usage habits today to potentially improve your chances of being accepted for credit as well as unlocking better, cheaper interest rates and offers 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.

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