You might have heard that Australia has now a comprehensive (positive) credit reporting system. But what does that mean?
Here is a quick explanation on what changes from a negative to a positive credit reporting. Happy reading!
When you apply for credit in Australia, the credit provider will usually ask for your permission to obtain and access the information on your credit report. The information helps the credit provider determine if you can manage to repay the loan and therefore process a decision to approve your application.
Until the reform of the Privacy Law in 2014, credit providers based their assessments of you as a potential borrower on whether you had any negative information on your credit report.
The information included was limited to basic things like the number and type of credit applications you had made (but not whether they were approved or not) and details of any overdue debts, defaults, bankruptcy, or court judgments against you.
Positive data now increasingly available
Also known as Comprehensive Credit Reporting (CCR), positive credit reporting makes it easier for lenders to make a more comprehensive assessment of your credit history when you apply for credit.
Credit reports now 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.
2018’s legislation fast-tracks Australia’s position in the global credit industry, in line with many other developed nations like the UK and the USA, where borrowers with strong credit histories have long used this information to seek out better credit offers. In fact, overseas markets that transitioned to CCR ahead of Australia have seen significant improvements to the lending environments for borrowers.
- In the US, CCR enabled an uplift of up to 40% in access to credit among younger and underserved borrowers.
- In Japan, the probability of delinquencies of 60+ days reduced by 34%, according to the Policy and Economic Research Council.
- In Hong Kong, credit card lending increased by almost 10% in the two years following the introduction of CCR.
Greater Australian participation in positive credit reporting forms part of Federal Government initiatives, marking a significant milestone towards a much fairer system.
The big four financial institutions (ANZ, Commonwealth Bank, NAB and Westpac) as well as some smaller lenders have started to share their customers’ positive data. Their involvement could trigger other credit providers to follow suit.
With access to richer data brought about by these regulations, credit providers can better identify and evaluate who to provide credit to, based on a greater level of insights. It is therefore important for all Australians to understand how their financial history impacts their next credit card, loan or mortgage application.
“From our experience in the 18 other countries where we operate credit bureaus, positive data sharing is a much fairer system. It doesn’t just help those with strong credit scores, it also means those without a long credit history, young first home buyers for example, can build one quicker than before.”
- Poli Konstantinidis, Experian Australia/NZ Executive General Manager, Credit Services & Decision Analytics.
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