When it comes to getting a loan for anything — from a car or business asset to a credit card, holiday or new home — your credit history is really important. That’s because it’s one of the things lenders use to assess whether or not they’ll approve you for a loan.
For Aussies, there have been some big credit history changes recently, and the good news is that the reforms are supposed to provide lenders with a more complete picture of an individual’s credit profile. This could lead to credit becoming more accessible to people who are seen to have good credit behaviour (such as making debt repayments on time).
That’s what the new regime, called comprehensive credit reporting (CCR), is all about. Here’s a few things you need to know about it.
1. It’s a big shift from the old system
Although CCR has actually been around since 2014, it was only in 2018 that participation in CCR became mandatory for the big four banks.
Before the reforms took place, most lenders only shared information on credit applications, overdue payments, defaults, and bankruptcy judgments on a credit history.
But now, in a win for consumer protection, lenders have to share information such as account open and closed dates, types of credit, credit limits and up to 24 months of repayment history information.
This is supposed to make it easier than it was before for lenders to form a comprehensive and balanced assessment of an applicant’s credit history.
2. What new info is included?
The new system means there will be new information listed on your credit report, which will help paint a more complete picture of your credit history.
Beginning 1 July 2018, the big four banks had 90 days to supply comprehensive data for at least 50% of a consumer’s eligible accounts. Beginning 1 July 2019, the banks have 90 days to share comprehensive data on all of a consumer’s accounts. So, if you haven’t already, you should start seeing changes to your credit report soon.
According to the government’s MoneySmart site, some of the extra items include: your usual repayment amount, the type of credit products you’ve held in the last two years, how often you make your repayments, and if you make them by the due date.
3. So, CCR is good for consumers?
According to analysis conducted by Finder, average credit scores in Australia sit in the high 600s, but credit scores can go all the way up to 1,200, and a higher score is better. CCR may improve your credit score, if, for example, you have been making your repayments on time.
However, if you have poor credit history, this will be more obvious to lenders and you might not be approved for credit.
What’s more, as CCR information is shared by lenders, the hope is that this leads to more market competition, and lenders potentially offering better deals to consumers, such as lower interest rates.
4. Lots of other nations have already got CCR
By switching to CCR, Australia’s getting up to speed with the type of credit reporting systems used in many other developed countries such as the USA, the UK, New Zealand and Japan.
5. You can get a free copy of your credit report
Don’t forget: You can check out your credit report and correct any wrong information. It’s your right to get a free copy, once every year, if you’re willing to wait 10 days from the date you request it. Have a look at the credit agencies you can contact here.
And remember, when you’re getting any type of loan — whether you’re considering a big purchase or you just need some extra cash — consider your options carefully and assess whether you need professional financial advice before you sign on the dotted line.