I have just read that 67% of Australians are not aware of this important legislation that will affect all borrowers in the future.
Scott Morrison claims it will help borrowers with a positive report get better interest rates. I have a feeling it may work the other way and borrowers with poor credit with be penalised with higher interest rates.
Furthermore, it is imperative that when you are providing information, like we you do with our Fact Find, that you include all of your debts so the information provided to the lender matches your credit report.
This includes all the little Zip Money type accounts and also those G.E. Store Cards even if they are currently interest-free.
Remember you can get a copy of your credit file for free at www.mycreditfile.com.au
Australia moves to comprehensive credit reporting (CCR)
After lagging behind other major developed economies such as the US and the UK for many years, the Federal Government legislated that Australia would finally move to a positive comprehensive credit reporting (CCR) system over the course of this year with final completion mid-way through 2019.
While this is welcome news for consumers and businesses who may want or need to get finance from time to time, the detail about CCR for many people can be hard to grasp.
What is positive comprehensive credit reporting (CCR)?
Quite simply, it means that lenders can use more detailed information on your financial background including your good credit history to work out the benefits and risks in lending money to you.
For example, unlike the current system that focuses on negative details such as payment defaults, court judgements and the number of credit application enquiries which “hurts” your credit profile and sees your credit score go down, positive CCR looks at how good you have been with credit overall.
Credit providers will, in future, be able to see:
- When a credit account has been opened or closed (the start of an existing or past loan and when it was repaid);
- The type of credit facility (mortgage, credit card, personal loan, car loan etc) and the available limit;
- Your last 24 months repayment history.
Together, this information will help credit providers to assess how good a customer or potential customer has been in managing their finances, whether the risk of lending to someone fits their credit criteria and how much and for how long they will lend them money.
For borrowers, it may mean that they will get rewarded for having a good credit history, not be penalised for one or two missed payments if a small glitch happens in their life and allows them to shop around for a better deal that suits them without that being held against them.
And for those consumers who, at the moment, might not be able to get finance because their credit history doesn’t come up to scratch, positive CCR will allow them to improve their financial position over a period of time through better budgeting, repayment and spending decisions.
How will that information be shared and will it be safe and secure?
This data already exists but the vast majority of it is held by the large banks and lenders and is not shared among themselves or smaller financial institutions.
What the Federal Government has announced is that the previous voluntary system which was introduced in March 2014 will now be made mandatory, initially focusing on the big four banks who hold most of this data given their 80% share of the lending market.
The major banks will have to make available half of their credit data for sharing by 1 July this year and increase that to 100% of their information by 1 July 2019.
At present, that sharing figure is less than one per cent.
What does the Government say about positive CCR?
In his announcement the Treasurer said that CCR will give lenders access to more and richer data, encouraging competition between them including new providers to help consumers and small businesses looking for finance. It will also improve the capacity of credit providers to meet their responsible lending obligations as set by the regulators. Those regulations require us to ensure a customer is able to repay their loans based on their income and spending needs.
The Treasurer described the changes as a “game changer for both consumers and lenders, resulting not only in greater lending competition but also better access to finance for Australian households and small businesses”.
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