Comprehensive credit reporting is about to reach critical mass

Comprehensive credit reporting is about to reach critical mass

The future has arrived. And borrowing money will never be the same again.

As of 1 July 2019, Australia’s big four banks will start fully implementing a system known as ‘comprehensive credit reporting’.

So what is comprehensive credit reporting?

Comprehensive credit reporting means that when credit providers supply credit bureaus with information about how their customers are managing loans, they supply both ‘positive’ and ‘negative’ information.

What are credit bureaus?

Credit bureaus, also known as credit reporting agencies, are companies that collect and analyse data about how Australians manage loans. The three main credit bureaus are Equifax, Experian and Illion.

In the past, banks and other credit providers supplied only negative information – such as when customers missed repayments or defaulted on their loans.

But as of March 2014, credit providers have also been able to supply positive information – such as when customers make repayments on time and pay off their loans.

Comprehensive credit reporting is regarded as a more accurate system, because it paints a more detailed picture of how Australians manage loans. It also gives people the chance to balance out one negative event (such as accidentally forgetting to pay a bill) with lots of positive actions (such as paying lots of bills on time).

What are credit providers?

Credit providers are companies that provide credit (or loans). The main ones are banks, credit unions and building societies. But telcos, internet providers and power companies are also credit providers, because they let consumers buy now and pay later.

What’s changing?

Wait, so if comprehensive credit reporting started in March 2014, what’s changing as of 1 July 2019?

Well, even though comprehensive credit reporting started five years ago, it wasn’t mandatory. 

In other words, a lot of credit providers – including the big four banks – weren’t supplying credit bureaus with positive information.

Australia’s big four banks provide about 80 per cent of loans, so their support is crucial to the success of any new finance initiative.

That’s why, as of 1 July 2018, the major banks received a 90-day deadline to start supplying both positive and negative information on 50 per cent of all eligible accounts.

And now, as of 1 July 2019, the major banks have 90 days to start supplying that information on 100 per cent of all eligible accounts.

Once that happens, the comprehensive credit reporting system will reach critical mass.

Why your credit score might change

When you apply for a mortgage or a credit card or an electricity account, the provider does a background check to assess how likely you are to repay any money they might lend you.

As part of this background check, the credit provider will often ask a credit bureau for a copy of your credit file.

In the past, these credit files contained only negative information, so they provided only a limited insight into your ability to manage loans. Now, these credit files will include positive information as well, which means they’ll provide a more accurate assessment of your credit history.

Once banks and other credit providers start supplying extra data to credit bureaus, your credit score might change, for better or worse.

  • If your credit score goes up – credit providers will be more likely to extend you credit and give you better deals
  • If your credit score goes down – credit providers will be less likely to extend you credit and give you better deals

A credit score is a number that represents your credit-worthiness. A high number means you’ve done a good job of managing loans in the past, while a low number suggests room for improvement.

Good borrowers have been paying too much interest

The government believes this new comprehensive credit reporting system will benefit many Australians.

Back in March 2018, when the government introduced the relevant legislation to the parliament, Michael Sukkar, who was then assistant minister to the treasurer, said a shortage of data was undermining the credit system.

“It means that more loans are declined by lenders who simply cannot verify a customer’s creditworthiness,” he told the parliament.

“And it means that many loans are mispriced, leaving borrowers with good credit histories paying higher interest rates than they otherwise would.”

Mr Sukkar pointed out that Australians who had a thin credit file or a single default against their name were disadvantaged by the negative-only system.

However, the addition of positive reporting would give those people “a better chance to build and repair their credit history” before applying for a loan.

“Small-business owners, entrepreneurs and sole traders will be empowered to borrow to build their businesses on the basis of strong consumer credit histories,” he added.

Australia has a credit reporting problem

Michael Sukkar, in his March 2018 speech, described Australia as an “international laggard” in credit reporting.

“Many of our largest trading partners – including the United States of America, the UK, New Zealand and Japan – have well-established comprehensive credit reporting systems,” he said.

“On this matter, we are falling behind even developing economies such as South Africa and India.

“But movement forward in Australia has been stymied by the lack of a ‘critical mass’ of credit reporting data.

“There is a critical first mover problem at play here – without sufficient data in the comprehensive credit reporting system, there is very little benefit for any individual credit provider to invest the time and capital required in building systems and arrangements to access it.”

More data equals more competition

Mr Sukkar said the new comprehensive credit reporting system would also improve market competition.

The theory is that new players and small companies will find it easier to compete with big, established rivals if they have access to rich data sets.

“Small credit providers, including innovative fintech firms and new entrants, will be better able to serve customers and assess the lending capacity of potential borrowers,” he said.

“Placing smaller lenders on a more level playing field with the major banks, in respect of access to credit information, will drive competition in the consumer lending market. 

“Greater competition in the lending market should benefit consumers, by being offered greater access to finance and better pricing.”

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Learn more about home loans

What is a credit file?

A comprehensive summary of your credit history from an authorised credit reporting agency.

It includes your credit details, credit taken in the last five years, any default payments or credit infringements, arrears, repayment history, bankruptcy filings and a list of credit applications (including unapproved credit applications) in addition to your personal details.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

Should I apply for a NAB home loan pre-approval?

Buying a new home is an exciting event in anybody’s life. Getting pre-approval means you know what you can afford so you don’t waste time looking at properties outside your budget. With a NAB Bank home loan pre-approval, you can look for your new home with confidence. The lender knows you’re serious about the purchase and also exhibits a willingness to lend you money.

Applying for a NAB home loan pre-approval is relatively straightforward. You might be asked to provide proof of employment and income, details of any savings as well as any on-going debts. NAB may also conduct a credit check on you to see if you’d be a risky borrower. If NAB offers you pre-approval after these checks, you’ll know how much money they’re willing to lend you. The NAB Bank home loan pre-approval is valid for 90 days from application, so don’t apply too early and be aware of this when looking for a property. If your pre-approval expires before you find a property you’ll need to reapply.

You can apply online for NAB home loan pre-approval, visit your nearest NAB branch, call on 13 79 79, or set up an appointment. If you choose to book an appointment, it can be done in person, via video, over a call or you can have a NAB Bank representative visit you.

 

 

 

How to apply for a home loan pre-approval from St. George?

By applying for a home loan pre-approval, you can establish how much you can afford to borrow and look for houses within that pre-approved budget. Getting home loan pre-approval from St. George is a fairly simple process that can be completed within 15 minutes. 

The first step in this process is completing a home loan application. Once that application is submitted, a home loan expert from St. George will contact you to understand your requirements and your current financial position. You could also directly contact a home loan expert at the bank by calling 13 33 30 or by visiting your nearest branch. 

Once the application has been processed, the home loan expert will ask for some basic documentation to confirm your borrowing capacity. After this, you should be issued a home loan pre-approval, subject to certain conditions. 

Based on your home loan pre-approval from St. George, you can then find a property and make an offer. Your home loan expert will arrange to have the property valued and may request for more documentation, taking your home loan application to the next step. 

 

 

How much deposit do I need for a home loan from ANZ?

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

  • A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
  • The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
  • If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

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Does UBank offer home loan pre-approvals?

If you’re applying for a home loan with UBank, you can first get an approval in principle. You’ll need to provide information about your job and earnings, your household expenses, the assets you own and the debts you owe. 

UBank will assign a home loan specialist to discuss these details over a phone call, which can take about 30 minutes. 

The bank will then confirm if you’ve received in-principle approval for your home loan. Depending on how you submit your documents, this could take a few days or a few weeks. If successful, the approval will be valid for 60 days.