The biggest change in credit reporting history has just hit.
On March 12th ‘comprehensive credit reporting’ [CCR] changes came into effect as a result of recent changes in the Privacy Act.
So what does it mean for you and why should you care?
Changes to the Act mean that credit providers will now be able to share a broader range of information about your credit history to credit reporting agencies [such as Veda, Dun & Bradstreet and Experian], than they’ve ever been able to before.
Here’s a summary of the important changes;
Before: A ‘default’ is listed on your credit file for being late by 60 days or more and on the amount you owe over $100. This stays on your history for 5 years.
Now: A ‘default’ is listed on your credit file for being late by 60 days or more and for amount you owe over $150. This stays on your history for 5 years.
Before: Your repayment history is not listed.
Now: Your repayment history is reported when you’re five or more days late in paying. This stays on your history for 2 years.
Before: Opening dates, closing dates and account limits are not listed.
Now: Opening and closing dates as well as limits are now listed.
What it means to you as a borrower
While some commentators argue the new changes could make it easier for some people to obtain loans, something tells me increased scrutiny of a person’s repayment history will make it harder for many borrowers to qualify for loans.
The new credit reporting system will help give lenders a better overview of a person’s financial situation and reveal more about an individual’s payment habits. This means lenders will be able to distinguish between high and low risk borrowers more easily and potentially offer more competitive financial products to lower risk borrowers.
Consumers will be positively assessed for good credit performance, instead of being assessed negatively. Prior to March 12th Australia operated on a negative credit reporting system which meant by law, only negative information such as defaults, bankruptcies and court judgements could be held by the credit bureau. As a result Banks lacked information on how many other accounts their customers have and what credit limits are attached to them.
With the new changes, banks will have a better understanding of whether a further loan would make someone even more overcommitted.
The credit changes are also good news for people who have traditionally been in demographics that lenders have been reluctant to approve loans for in the past. This includes young people and recent migrants who, up until now, face a lot of difficulty because the banks don’t have enough information about them and consider them too much of a risk.
Under comprehensive credit reporting, your credit history builds up quickly which means that in a relatively short amount of time you can become creditworthy.
The changes might also potentially reduce the amount of paperwork applicants need to provide as lenders will be able to verify credit behaviours by collecting information from the credit bureau rather than the applicant.
For example, when refinancing existing loans lenders may no longer have to ask to see loan statements as much of the information contained in these will be available via the credit report. This might even improve turnaround times considering that delays with home loan applications are often due to outstanding statement information.
So how can you improve your credit score?
Veda offers a few simple steps that people can take to influence their credit report and VedaScore.
- Pay your loans and bills on time – paying your personal loans, mortgages, credit cards and utility bills on time does matter, so overdue debts are not recorded on your credit file.
- Do your homework before applying for credit – do your research to compare providers before making your application for credit. Making a number of applications within a short space of time will be recorded on your file and is not always looked upon positively by lenders, as it may be an indicator that you’re in credit stress.
- Check your credit report well before you apply for credit or a loan – this may give you an idea of whether your application will be successful. [you can get a free copy of your credit report as veda.com.au]
- If you move house, notify lenders – advise lenders and utility providers of your new address so they can re-direct bills to your new address. If you don’t pay these bills, a credit infringement or overdue debt could be listed on your credit report.
- Keep track of your credit record – proactively manage your personal credit report by regularly checking what your credit report looks like and get alerts on any changes made to your credit report. [paid service provided by veda.com.au]
To find out more about comprehensive credit reporting click here
To your success,
Sam & Matt
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