Australians applying for a new credit card, loan or mortgage may soon be assessed on their credit repayment history over the last two years after the federal government moved to fast-track greater sharing of positive data amongst banks and credit providers.
Until 2014’s Privacy Law reforms, credit providers based your credit record assessments on purely negative data. This included basic information like how many credit applications you had made (irrespective of their approval or rejection) and details of any overdue debts, defaults, bankruptcy, or court judgments against you.
But in a move welcomed by 70% of Australians, as reported in our consumer paper “Know the Score – how positive data could impact your next credit application” Australian credit providers have started actively sharing positive credit data, which means it is now it’s even more important than ever before for all Australians to understand how their financial history could impact their next credit card, loan or mortgage application.
Why? Along with the announcement in the most recent budget that young Australians will have to start paying back their HECS debt at a lower salary threshold, the growing national conversation around the future of housing affordability means that having a strong credit score and understanding its potential impact is paramount if the next generation is to be confident when seeking to enter the property market.
During this year’s Federal budget, Treasurer, The Hon Scott Morrison, announced that the Government will “legislate a mandatory comprehensive credit reporting regime if credit providers are not reporting at least 40 per cent of their data by the end of 2017,” as recommended by a Productivity Commission report.
The move to fast-track industry collaboration under the comprehensive credit reporting regime is expected to help borrowers with a strong track-record of making timely credit repayments be better recognised and will assist others to avoid entering into unmanageable levels of debt.
Your credit score
Many Australians lack an understanding of how their credit score is calculated and what impacts it and as a result fail to grasp how the world of positive data sharing could potentially impact their ability to borrow money – either in beneficial or detrimental ways.
In the past, lenders were only given access to negative data such as bankruptcies or defaults, and having multiple credit accounts also may have decreased a person’s score without any of their strong history of making repayments being able to be taken into account.
Without the ability to see how indebted a customer was or their bank account open and close dates, lenders lacked verifiable insight into how indebted a borrower was, increasing their risks of defaults and bankruptcies. But as more positive information is shared, credit providers are better able to identify and evaluate your credit position, based on a broader range of data which includes the accounts you hold and how well you’ve been repaying them over time.
Customers who are in control of their debt also benefit from positive data sharing, for example, those who may have had multiple credit accounts but were up to date with their repayments. In fact, Experian’s insight shows that the vast majority of Australians have a clean record of not missing a repayment. These borrowers with a strong repayment history, will increasingly be better recognised by lenders aided by positive data.
How the new world of positive reporting impacts you
Also known as Comprehensive Credit Reporting, positive credit reporting is already increasingly available in Australia. Credit reports now often include information about the current accounts you hold, what accounts have been opened and closed, the date that you paid any default notices, and how well you meet your repayments.
With up to 24 months’ worth of repayment information at hand, lenders are able to make more comprehensive assessments of your credit history when you apply for credit.
For borrowers armed with a strong repayment history and credit score, positive data provides an opportunity to negotiate with lenders for more competitive terms while lenders are more empowered to assist customers to avoid entering into unmanageable debt.
Those who are recovering from debt and have brought their accounts up to date may also increasingly see an improvement in their credit score, where previously the existence of the debt would have more strongly counted against them.
What you can do now
Experian’s March 2017 survey of over 1,000 Australians found that while 32% don’t know how to check their credit scores, a staggering 24% don’t even know what a credit score is. In total, 71% of Australians don’t know where they stand with potential credit providers and may be unaware of the changes they can make to improve their rating.
It’s important to start positively impacting your future credit score with a matter of urgency as the new data is increasingly shared. Our whitepaper provides more insight into the importance and composition of your credit score, and how positive credit reporting will make a difference.
By diligently making your repayments on time and ensuring your bills are paid to avoid your debt being sent to a recovery agency, as well as regularly checking in with your credit score you’ll ensure you’re in the best spot to take advantage of the new, positive credit reporting era.