Like it or not Comprehensive Credit Reporting is here, and the impact for lenders, banks, companies and individuals is something everybody needs to understand.
The Legal Mumbo Jumbo
The Australian Treasury Department announced on 2 November 2017 that it would legislate a mandatory Comprehensive Credit Reporting system to come into effect by 1 July 2018, requiring the big four banks (ANZ, NAB, Westpac & Commonwealth Bank) to participate 100% in the new credit reporting system.
This new measure will give lenders access to a more thorough, deeper, richer set of data points which enables them to better assess a borrower’s true credit position and their ability to make loan repayments
The Old System Vs The New System
Previously Negative credit reporting is the system used in Australia. Essentially this was designed and based around financial service providers only using 'negative reporting'.
Lenders would base their assessments of a potential applicant primarily on whether the applicant had any 'negative reports' recorded on their credit file. In the credit report, lenders could access this information concerning a client’s credit applications up to 5 years old – however not whether the application was approved, conditioned or declined. The credit report also included limited details of bad account conduct such as any overdue debts, defaults, court judgments or bankruptcy.
The new credit report not only includes all the previous 'negative report' data, it now includes information about current finance and accounts you hold. Also included in this report is what accounts have been opened, used and closed, the date that you paid any negative defaults, and how well you currently meet all of your repayments.
Pros & Cons
- If your accounts have been conducted in a good manner, this will be registered on your credit file
- This can help even out your credit file of there were some late payments in previous years
- Applicants with a relatively new Credit File have often found it difficult to secure competitive finance arrangements. This new system will help ease the finance companies risk-gradings and their willingness to support a borrow.
- Scott Morrison the current Australian Treasurer made comment that this system will increase the availability of lender credit and help borrowers negotiate lower interest rates.
- If you are a bad payer of your bills, then this will greatly impair your credit score.
- Displaying more information on credit files could also lead to more mistakes, and the growth of the 'Credit repair business' which are a type of 'extreme debt vulture. These businesses promise to 'clean or repair' a credit reports
- There are also other concerns regarding whether a state of temporary financial hardship which could possibly be caused by sudden involuntary unemployment status, or natural disaster (floods, fires, extreme weather etc) will impact a person's credit score.
Overall Comprehensive Credit Reporting is a big step forward in Australian lending. With applicants who regularly pay their bills on time being rewarded accordingly, and faster improved risk assessments for lending. However, it is always important to understand learn what you need to know about getting finance and in the unfortunate event that you do have bad credit, understand how to get finance, even with bad credit
Are you ready for the next step?
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