A recent survey indicated that most borrowers are in the dark about the credit scoring system lenders use.
More than ever it is important that you spend a few minutes to find out what a lender finds out about you when you apply for credit.
It is also important that you understand the impact of Comprehensive Credit Reporting (CCR).
Positive (Comprehensive) Credit Reporting (CCR) was mandated by the Australian government from 1 July 2018, giving lenders access to a deeper, richer set of data enabling them to better assess a borrower’s true credit position and their ability to pay a loan. Because of this measure it may mean you see a change in your credit score within the coming months. Why? Read below for a further insight into what this means for you, how it might benefit you, as well as what it means for the financial market.
So what is Comprehensive Credit Reporting (CCR)?
Right now if you were to check your credit report it, for the most part, will consist of negative information (defaults, bankruptcies etc). CCR will introduce more data on your credit report as the regime will allow credit providers (banks & lenders) to share more of your data with a credit bureau (i.e Equifax). Ultimately, this will provide a more complete picture of your situation, allowing credit providers to better match the credit you applied for to your circumstances. In February 2018, NAB were the first major bank to start participating in CCR in a phased roll out. From 1 July 2018 the big four banks were required to share 50% of your credit data (they can choose which data to share) within 90 days with credit bureaus and by 1 July 2019 this increased to 100%.
Why should you be aware of CCR?
It’s important that you’re aware of these changes as they affect what’s shown on your credit report and what information can be accessed by credit providers about your credit history. Ultimately you may see a change in your credit score as this additional information is added to your credit report (your credit score is generated based on the information in your credit report). These changes are designed to deliver better outcomes for customers as it will increase competition throughout the financial market.
So what additional information will be added to my credit report?
Comprehensive Credit Reporting will introduce more data that reflects positive credit behaviour. For example, more information will be available on your payment behaviour, making it easier for credit providers (i.e banks & lenders) to better match the credit you applied for to your needs & circumstances. This will mean your credit report may show the following information on accounts like credit cards, home loans and personal loans:
- Type of credit account (credit card, personal loan etc)
- Date the credit account was opened
- Current credit limit
- Account closed date
- Repayment history: your loan repayment history over a period of 2 years (24 months) including any late or defaulted repayments you may have received and the date you paid the default in full.
How might this benefit you?
As more CCR information is available to be shared by lenders, it can ultimately drive market competition and result in lenders offering a better deal based on your unique credit circumstances. In short you could be rewarded for a good credit score with a lower interest rate. Some of our lenders already do this in the market, i.e. tailoring their personal loan rates to your unique score, take a look for yourself here. Your credit score may also change (in a good way) as the additional data (i.e. showing that you’re paying your bills on time) may positively influence it.
While these changes are still taking place in the Australian financial market, it is not an entirely new concept. CCR is already common practice in the United States and the United Kingdom, we are simply catching up.
Is there anything I need to do?
No. The changes will take some time as credit providers that are allowed to use CCR, may adopt it at different times.