What’s new

29 March 2019

Changes to Comprehensive Credit Reporting

From 1 July 2018, comprehensive credit reporting (CCR) became mandatory, which means lenders now use a larger magnifying glass to pry into your credit history.

There are both winners and losers when it comes to home loan approval – which side are you on?

What is positive credit reporting?

Prior to the introduction of CCR or positive credit reporting in March 2014, Australia effectively operated under a “negative” credit reporting environment.

What that means is that credit agencies now record:

  • The date a credit account is opened.
  • Current limit on credit accounts.
  • The nature of the credit account.
  • The date a credit account is closed.
  • 24 months account payment history: Monthly repayment history will reflect whether you paid the minimum amount required on your financial commitments each month or not.
  • A “default” listing if your payment is late by 60 days or more and for amounts you owe that are over $150 (previously the amount was $100). It will still remain on your file for 5 years.

Repayment history data can only be provided by and shared with licensed credit providers so your information does not include telephone and utilities accounts.

Can lenders see this new data on my credit file?

Yes!

The new information is also reflected in your credit agency score.

Depending on the lender and the weighting they give to your credit agency score, it also influences the way banks credit score.

Read below to discover how a credit score can make or break your application.

How is CCR reflected in my credit file?

You will find a lot of this new information, including your 24-month repayment history, under the heading 'Consumer Credit Liability Information' with your credit agency. 

If you have multiple accounts with the one lender, a separate table will appear for each account.  

How will positive reporting help me qualify for a home loan?

Positive credit behaviour can help negate bad behaviour because it highlights both good and bad credit behaviour:

  • Quicker to establish a credit report: This is great for the first home buyer or a new migrant to Australia that needs to build their credit profile before applying for a home loan.
  • More balanced system for everyone: It rewards the good and gives people who have had credit problems in the past a second chance.
  • Access to better home loan deals: Australians who previously fell into the “bad credit” category now have the chance to get a better interest rate.
  • Cut down on application time: Positive credit reporting reduces the amount of paperwork applicants need to provide because lenders can collect this information from the credit bureau.

CCR allows you to recover faster from financial adversity and rebuild your credit profile.

How can CCR work against you?

Depending on the lender you apply with and the amount that you borrow, your credit agency score can be dragged down by positive credit reporting.

How?

If, for example, you only have a small amount of debt but you’re not keeping up with your repayments, a greater consideration will be given to your credit score when borrowing at a higher Loan to Value Ratio (LVR), which is typically anything over 90% of the property value.

Under the new rules, you could be hit on two fronts by being flagged for multiple credit enquiries and an unreliable repayment history, dragging your credit agency score down even lower.

Any credit limit increases you apply for are now also included in your credit history, suggesting that you are having trouble managing your finances.

What hasn’t changed?

The following information will still be recorded on your credit file and have an impact on your credit score:

  • Basic information such as your full name, date of birth, gender, address, previous address, drivers licence number, employer and previous employer.
  • Loans that you applied for in the last five years, listed as credit enquiries.
  • Loans or accounts where you are more than 60 days overdue, listed as defaults.
  • Court judgments.
  • Court writs.
  • Bankruptcy history, including any Part IX agreements.

How can you adapt?

  • Only apply for credit or a loan if and when you need it: Do your research before applying for a home loan and go with a lender that will take a common-sense approach to your situation.
  • Do not overdraw your credit card.
  • Make all of your repayments on time: Set up direct debit, have loan repayments scheduled for your pay day and maintain a savings account with a pool of money to ensure you don’t miss your payments.
  • Pay any defaults listed on your credit file.
  • Stay in your current job and living address until you apply for your loan: This basic information will still play an important part when banks generate their own credit score.
  • Show that you are good with your money by making regular deposits to a savings account.
  • Talk to your credit provider if you’re in financial trouble: They may be able to help you by setting up a payment plan.
  • Ensure your credit file has accurate and up-to-date information.

Speak to Gokee and he can compare a number of different options from a range of lenders for you and do it without adding another unnecessary enquiry to your credit file.

Did you know that not all banks give the same weighting to your Credit Agency Score?

Some will score you more favourably depending on your situation. Some do not use credit scoring at all!

What is the Repayment History Information (RHI) reporting system?

Lenders and credit providers will provide your credit agency with repayment history information on a monthly basis.

This basically shows whether you’ve been making your payments on time on your credit accounts.

When lenders make a CCR enquiry with your credit agency, the report is displayed in a table format with each month assigned with a specific score.

So for 12 months, the repayment history report will look something like this:

 

Jan  Feb  Mar Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec  
 0 000

 

What does each CCR code mean?

The codes are set out under the Australian Credit Reporting Standards (ARCA) and are a quick way for lenders to scan your repayment history.

The scores are explained below:

  • O = Account is paid on time
  • 1 = 0-29 days overdue
  • 2 = 30-50 days overdue
  • 3 = 60-89 days overdue
  • 4 = 90-119 days overdue
  • 5 = 120-149 days overdue
  • 6 = 150-179 days overdue
  • X = 180+ days overdue
  • C = ‘Account is closed’
  • A = ‘Not associated’
  • R = ‘Not reported’ – the bank or credit provider didn’t provide payment history for this period, which is a fault with the credit provider, not necessarily you as an account holder.
  • P = ‘Pending’ – purchases made with a credit or debit card that are pending (for up to 5 days) but have been deducted from your available funds until the merchant finalises the payment.
  • O = ‘Other’
  • T = ‘Transferred’ – a balance transfer of your debt with one lender to another usually to save on interest repayments on a credit card or store card.

Why introduce positive credit reporting?

Believe it or not, comprehensive credit reporting isn’t actually a new thing.

There have been many studies undertaken supporting the benefits of positive credit reporting since the Commonwealth Privacy Act was introduced in 1988.

In fact, most other developed nations, such as the United States, employ CCR in order to better screen potential borrowers.

The Australasian Retail Credit Association (ARCA) had long been demanding change to the previous “negative” credit reporting regime in Australia and, by December 2012, the Australian Privacy Commissioner requested that ARCA develop the new credit reporting privacy code.

After consultation with the public and other relevant stakeholders throughout 2013, the new reporting regime came into effect in March 2014.

However, it wasn’t until 2018 that sharing repayment history information became mandatory for lending institutions and credit providers.

View a Sample Credit Report from CreditSmart.

Call Gokee Arora @ Iconnect Financial Alexandria on 02-8958 1392 or fill in the Contact us link to understand how positive credit reporting will affect you.

 

 

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