What is Comprehensive Credit Reporting and How Does It Affect You?
Commonwealth Bank has finally made live its comprehensive credit data almost two years after the Australian government mandated the “Big Four” (NAB, ANZ, Westpac and CommBank) to adapt the Comprehensive Credit Reporting (CCR). CommBank was the last of the four banks to complete the transition to the new system.
Large Authorised Deposit-taking institutions (ADIs), including credit unions like Macquarie and foreign subsidiary banks like Citigroup, are expected to follow suit. By June 2021, all currently legislated institutions are expected to provide their comprehensive credit data to credit reporting bureaus.
The extensive move of big financial institutions to adopt the CCR is in response to the 2014 amendment on Australia’s Privacy Act of 1988, which called for the inclusion of additional information about borrowers’ credit history in their credit profiles. Apart from revolutionising the Australian lending industry, the country’s embrace of CCR has also brought its reporting system in line with many other OECD countries that have followed a positive credit reporting system, like the UK and USA.
While it took years for the financing institutions to comply to CCR before it was made mandatory, the new credit reporting system has now been in full force effect. It is expected to bring major changes to the country’s lending landscape.
What is Comprehensive Credit Reporting?
It is a system that promotes the inclusion of comprehensive, more positive credit data on your credit report as a borrower. By doing so, lenders can have a better look at your credit history and a deeper understanding of your financial situation and capacity for repayment.
The Past: Australia’s Negative Reporting System
Banks and other large financing institutions have been sending credit information to the credit reporting bureaus in the past. However, the information they share is limited and generally focused on negative aspects. These include late payments and history of defaults, bankruptcy, foreclosure, repossession, court judgements, maxed out credit cards, and applications or inquiries for several credit or loan products at once.
The big banks have been reluctant to share comprehensive information about their consumers because they treat consumers’ credit data as an asset. It allows them to curate deals and offers based on their customers’ behaviour and credit habits. By sharing this data with the credit reporting bureaus, other lenders can access the information and create loan plans that strongly compete with the banks’ offerings.
As a result of the reluctance of financial institutions to share comprehensive information about their clients, the country’s major credit reporting bureaus focused on the available, mostly negative pieces of information in each borrower’s credit profile. Lenders use this information to judge your creditworthiness.
The Future: Positive Credit Reporting System
The new comprehensive credit reporting system will specifically include detailed, more positive information about your consumer credit habits and behaviour. It helps lenders get an extensive and balanced assessment of your creditworthiness.
These new pieces of information include:
- Monthly (or any other frequency of) repayments for the last two years
- Overdue account details
This additional information on your repayment history will help lenders better assess your reliability as a payer. If, for instance, you’ve had a single past-due payment on a previous loan because of misreading the due date, this would be likely subdued by a recognisable pattern of monthly on-time repayments.
Personal Credit Liability
- Type of credit applied for
- Amount of credit applied for
- Type of account opened
- Date of account opening
- Type of account closed
- Date of account closing
- New and old credit amounts
- Maximum credit limit available for each account
- Repayment conditions
- Default agreement details
- Names of credit providers
These details demonstrate your ability to manage a diverse range of credit products. They also provide lenders with a better idea of your risk as a borrower. For instance, you may not owe much debt but if you have a $20,000 unutilised credit limit on your loan, it could increase your borrowing risk. Lenders can also identify credit stress and may decide to turn down your loan application, temporarily hurting your financing efforts but helping you avoid bad debts and bankruptcies in the long run.
Because CCR focuses more on positive than negative information in your credit profile, it is also called as “Positive Credit Reporting”.
How Comprehensive Credit Reporting Affects You as a Borrower
The addition of more positive data in your credit report boosts your credit score, which eventually improves your chances of being approved for a loan.
Higher Chance of Approval
The new positive information in your profile can significantly boost your credit score. This is especially true if you’ve made on-time repayments on your previous loan from the last two years. Remember that payment history is the biggest contributing factor to your credit score. If you’ve been outstanding in this criterion, you would definitely see a boost in your credit rating.
With a higher credit score, you’ll have a better chance of acquiring a loan or a new line of credit. Lenders would see you as a responsible borrower who’s likely to pay your dues on time, as you’ve done so in the past.
Low Interest Rates and Better Loan Terms
The addition of positive information in your credit history will help create a strong credit profile. In turn, it will positively affect your credit rating. A strong credit score helps you get easily approved for a loan. It also fortifies your negotiating leverage for better loan terms and lower loan interest rates.
A piece of single positive information can make a lot of difference. The new information could raise your credit score from average to good. For a 30-year fixed-rate mortgage of $200,000, for instance, an average score would give you around 4.3% interest rate but a good one will offer around 4% or lower. Imagine how much savings that would make if you’re paying your loan for 30 years!
New Chance for Old Borrowers with Poor Credit
Have you been a delinquent borrower in the past but have since changed your ways for the last two years or so? Your positive transformation will reflect on your comprehensive credit report. This helps a lot in showing lenders that you have changed your ways. It convinces them to grant the funds you requested. It also helps you negotiate for lower interest rate and favourable repayment terms.
Also, if you have made on-time payments for the past two years, it will raise your credit score. This will balance out the impact of a loan default you’ve made some seven or eight years ago.
Better Chance for the Newbies
If you’re in your early 20s, you likely have a very short credit history that hardly appeals to lenders. With CCR, the additional information on your repayment history and personal credit liability can thicken your credit file.
This is especially helpful if you’re looking to buy a car or a home for the first time. Even if you don’t have a long credit history, you’ll have a higher chance of approval if you’ve made timely payments on your credit cards and you don’t spend beyond the recommended 30% credit limit. Your comprehensive credit report shows your repayment activities and efficient use of the credit line.
Better Loan Deals from Healthy Competition
The sharing of comprehensive consumer data will increase competition among credit providers. This will potentially drive down many costs for all credit customers. Various financing institutions can create loan deals that can strongly compete with bank offerings. The healthier the competition among lenders, the better deals you’ll get.
All in all, the new credit reporting system helps build a stronger credit report by focusing more on positive payment habits. These include taking out loans one at a time and being on top of your credit repayments.
Additionally, the lenders will be in a better position to gauge your financial situation and capacity for repayment. They can better assess when to approve or refuse your credit. This helps stop a culture of over-indebtedness and default. It also encourages you to become a more responsible and educated borrower. The better understand your credit standing, the more you can effectively negotiate for better deals. This is especially true if you’re on top of your credit repayments.
What to Watch Out For
Privacy Concerns and Misuse of Data
With countless lenders now able to access your personal financial information, your privacy and safety could be compromised. The large database of consumer information could attract a lot of hackers. It could also be exploited for unauthorised purposes, including identity fraud and even marketing and other non-credit related purposes.
These concerns, however, can be addressed by legislative controls, strengthened law enforcement and more flexible penalties on individuals and entities found guilty of exploiting consumer information.
Delinquency is Scary
The comprehensive credit reporting puts great value on your repayment pattern and management of debts. It is essential to become a responsible borrower now more than ever.
Now that both big banks and small-time lenders can easily access your financial and credit information, building your creditworthiness is crucial. If your credit profile is laden with records of late repayments, high credit limit usage and substantials amounts of debt, you might not be able to borrow money for a very, very long time.
Loans For People With Bad Credit is a financing broker that provide fast and efficient loan solutions to Australians nationwide. We work with trusted banks and lenders to match you with the right loan. Call us on 1300 769 384 or request a Loan Pre-Approval.
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