Positive Credit Reporting - How Will It Affect You?
Under the new comprehensive credit reporting scheme, lenders will be able to see not just whether you have a serious payment default, they'll also have access to information like whether you've made any late payments. The legislation, introduced to Australia in 2014 brings us in line with other countries like US, UK and NZ. .
However, Comprehensive Credit Reporting (CCR) is currently a voluntary ‘opt-in’ system in Australia.
Many credit providers continue to use the negative reporting assessment, considering assessing you lending risk based upon only your past applications for credit and any serious payment defaults. In August 2016, only 24% of credit providers in Australia have comprehensive data loaded into the primary credit reporting database, Veda (bought by international company Equifax early in 2016).
Big Banks Reluctant To Share Data, NAB leads the way.
National Australia Bank is now sharing the new data fields with credit reporting bodies in ‘private mode’ with a view to data being public by the end of 2016. Other credit providers who share and use CCR information include Ratesetter, American Express, Toyota Finance, Nimble and FlexiGroup.
The other big banks, including Commonwealth Bank, ANZ and Westpac haven’t yet shifted to comprehensive credit reporting, possibly trying to retain a competitive advantage by holding onto the data. It’s only a
matter of time before the government is pressured to make CCR mandatory.
We Investigate How Positive Credit Reporting Will Affect Everyday Australians
We took a survey of 10,000 Australians and asked if they’d missed any payments or paid a finance loan or utility bill late in the last 2 years. Here’s what we found:
25% of people responding to the survey have missed a repayment in the last 2 years. Breaking the data down by state, you’re more likely to have a missed payment if you live in the Northern Territory or, surprisingly, the ACT.
Northern Territory and ACT residents most affected
Tasmania, New South Wales and WA are the states with the most responsible residents, with only around 22% of people missing a payment, while QLD, ACT and NT had numbers closer to 30%. South Australia and Victoria fell in the middle with 25% of survey respondents missing a payment.
The age demographic most affected by the visibility of missed repayments is also a surprising result - if you’re 35-44yrs, you’re most likely to have missed a payment, closely followed by the 25-24 age bracket. Only 20% 18-24-year-olds have missed payments, perhaps reflecting the fact that at this age many young people still live at home, and therefore have fewer bills to worry about.
Among women, around 26.6% of those aged 45-54 reported having missed payments and this group will be affected by the credit reporting changes far more than women aged 18-24, 82% of whom reported no missed payments in the last 2 years.
Young people benefit, women 45-54yrs negatively impacted
Our survey reveals that around 25% of Australians could be negatively impacted by positive credit reporting, showing missed payments as well as serious defaults. It’s not all bad news though. Once you do have a missed payment or default on your file, it’s easier and quicker to repair your damaged credit score by making repayments on time consistently following the missed payment.
If you have do have an exemplary credit history, it’s possible that you could benefit from rates allocated according to the very low credit risk that you represent as new lenders enter the market providing competition for the Big 4.
Nevertheless, we expect to see a slide in overall credit categories, with up to ¼ of those now classed as ‘prime’ consumers becoming subprime, and the follow-on slide of subprime customers falling into the non-conforming category as the additional credit data becomes available.
Positive credit reporting isn't all bad news though. It should become easier for young people with a short credit history to get finance because there will be more information available about their credit behaviour.
This will benefit those aged 18-24 years with low missed payments, but an inevitably short credit history. The same will apply for recent arrivals to Australia - they’ll be able to establish credit history much more quickly.
Positive Outcomes for Consumers
The upside of the changes is that consumers will have more control over the information in their credit report and can more easily address errors. There’s also increased privacy, and the ability to see which lenders have accessed your report.
Are you wondering exactly what the comprehensive credit reporting system will involve? Read on to find out what the lender's will be able to see about your credit history, and how a 'late payment' is defined under the new system.
What New Credit Information Will Lenders Share?
From 12 March 2014, lenders had access to 5 new data fields:
- Date account is opened
- Limit of account
- Nature of credit account
- Date account is closed
- Account payment history - available to licensed credit providers
Any credit provider (mortgage credit, personal loans, credit cards) with an Australian Credit licence can disclose repayment history information to a credit reporting body, or access repayment information found on your credit report.
Utilities and telecommunications are NOT included, neither are retail companies that allow you to defer payment for goods and services, toll road and public transport operators. The only time a default from these companies will show is for a any payment of over $150 that you’ve been notified off in writing twice, and is over 60 days overdue. Under the Privacy Act, other things that can’t be recorded are: credit account balances, criminal record, membership of any professional associations or trade unions.
How 'late' is a recorded late repayment?
A late repayment means that the payment is made more than 14 days after the due date. The credit provider has to notify you at or before the time that the information is given to the credit reporting body. The amount of the missed payment is not included, and only 2 years of repayment history will show on your credit file at any time.
A default is different to repayment history - this is when a bill or repayment history is overdue for at least 60 days and the amount is for $150 or more, you have been served 2 written notices requiring payment.
If you’ve paid a default in full, this fact and the date you paid it will be recorded. Similarly, if you enter an agreement with the provider about payment of a default, this information is recorded.