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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Learn more about personal loans

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.

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.

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.

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.

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.

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.

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.

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.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

What can I use a bad credit personal loan for?

Generally, bad credit personal loans can be used for the following purposes:

  • Debt consolidation
  • Paying bills
  • Buying vehicles
  • Moving expenses
  • Holidays
  • Weddings
  • Education

Some lenders restrict how their bad credit personal loans can be used as part of their commitment to responsible lending – be sure to check before applying.