Comprehensive Credit Reporting - What does it mean for you?

How Comprehensive Credit Reporting Affects You! - RateCity

What is comprehensive credit reporting?

Comprehensive credit reporting means including both positive and negative information in a person’s credit file.

Positive information includes paying bills on time, closing loans and reducing the limit on a credit card. Negative information includes paying bills late, defaulting on loans and applying for lots of credit products.

Before comprehensive credit reporting was introduced, only negative information was included in a person’s credit file.

How does comprehensive credit reporting work?

Comprehensive credit reporting involves keeping track of all your credit activity – both positive and negative.

There’s no neat formula – for example, we can’t say that one negative act can be cancelled out by, say, eight positive acts.

Instead, credit reporting bodies aim to assess all acts on their merits and weigh them accordingly.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced in March 2014, although it wasn’t compulsory for lenders to participate. On 1 July 2018, it became compulsory for the big four banks (ANZ, Commonwealth Bank, NAB and Westpac) to participate.

What are credit reports and who produces them?

A credit report is a document that records your history of managing loans, credit cards and other credit products.

Credit reports are produced by Australia’s four credit reporting bodies – Equifax, Experian, Illion and the Tasmanian Collection Service.

Why was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate.

Under the previous system, credit providers saw only negative information on a consumer’s credit report. Now, they get to see both positive and negative information, which means they can see if negative behaviours are part of a pattern or just rare exceptions.

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Credit reporting bodies support CCR

Illion said comprehensive credit reporting would encourage competition and innovation in the financial services sector. “This will offer consumers pricing benefits from a more competitive market, as well as the capacity to show a recovery from a negative credit experience sooner than what is possible under a ‘negative only’ regime,” Illion said in a submission to the federal government.

Experian said in its own submission that comprehensive credit reporting will make it easier for lenders to assess borrowers. “This will result in better loans being made and a better pricing of risk. This will ensure a stable lending sector, which leads to more confidence by investors to make more loans. The end state will be an environment with more competition and lower prices for consumers.”

How does comprehensive credit reporting affect me?

Comprehensive credit reporting affects you because it influences how likely lenders and other credit providers are to extend credit to you.

The idea of comprehensive credit reporting is to provide an accurate picture of your history of managing credit. It’s best to avoid negative credit events – but if they happen, their effect can be reduced by lots of positive credit events.

The more positive events and the fewer negative events on your credit file, the more likely lenders will want to do business with you, and the more favourable the terms they are likely to offer.

For example, a lender might accept a loan application from someone with good credit history, but reject an application from someone with bad credit history. Or a lender might accept both applications, but offer a lower interest rate to the good-credit borrower and a higher interest rate to the bad-credit borrower.

The government’s take on comprehensive credit reporting

In February 2018, Treasurer Scott Morrison said comprehensive credit reporting would be “a game-changer for consumers” and would give them “better deals on mortgages, personal loans and small businesses loans”.

“Customers with good credit histories will be able to obtain lower rates, and be better placed to shop around because their credit history will now become available to all lenders. Others, whose previous credit histories only included default rates, will also get a better chance to demonstrate their credit-worthiness because there will be more credit information available on their reliability,” he said at the time.

“The new credit reporting rules will help open up the lending market to competition by allowing new lenders entering the market to better assess credit risk, meet responsible lending obligations and at the same time reduce exposure to defaults. This is good news for customers because it means that new entrants, including innovative fintech firms, will be able to use comprehensive credit reporting information – removing a significant barrier to entry that currently exists in the system.”

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What is comprehensive credit reporting?

Comprehensive credit reporting is a system which includes both positive and negative information on a person’s credit file. Before comprehensive credit reporting was introduced, only negative information was included.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate. Under the previous system, credit providers only saw negative information about potential borrowers. Now, they're able to see both positive and negative information, which means that credit providers can see if a borrower’s negative credit behaviour is consistent or a mere one-off.

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

How long will I have bad credit?

Most negative events that appear on a person’s credit file will stay in their credit history for up to seven years.

You may be able to improve your credit score by correcting errors in your credit report, clearing outstanding debts, and maintaining good financial habits over time.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

Who calculates your credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies. The main bodies are Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

Are there emergency loans with no credit checks?

While many personal loans require a credit check as part of the application process, some personal loans and payday loans have no credit checks, which may appeal to some borrowers with a bad credit score.

Keep in mind that even if a loan is available with no credit check, the lender will likely want to confirm that you can afford the repayments on your current income.