Comprehensive Credit Reporting is here. What is it and what does it mean for you?
What is Comprehensive Credit Reporting?
On 1 July 2018 there big changes were made to credit reporting that could have serious consequences the next time you apply for a car loan, personal loan, mortgage or credit card — and most people are still completely unware of these changes.
Currently, most lenders only share negative information such as credit applications, defaults, overdue payments, bankruptcy and court judgments. Under the new system, they will also have to share positive information, such as current accounts you hold, what accounts have been opened and closed, the date that you paid any default notices, and when you made all your repayments on time.
Along with bringing positive changes for both lenders and clients, Australia switching to CCR has brought our credit reporting system in line with other OECD countries, many of which have some form of positive credit reporting. It’s common practice in the USA and UK for consumers to use their positive credit rating as leverage when looking for a loan of any sort, and CCR will allow for Australians to do the same (provided they have a good credit rating, of course).
What has changed?
The new categories of information included in your credit file under Comprehensive Credit Reporting now includes repayment history information and consumer credit liability information.
Repayment history information includes:
Repayment history for credit accounts such as credit cards, home loans and personal loans
Whether you have made a payment or minimum payment required
Whether the repayment was made on time or not
Your repayment history is stored on your credit file for two years.
This shows – on a month by month basis – whether you’ve made your loan payments on time. Other lenders will see a 24-month history of your payments (after 24 months, the information falls off your credit report).
Each month that you are able to make your payments on time will give a new lender more confidence that you’re going to be able to repay the new loan.
Only banks, credit unions and other types of finance companies are able to report or access repayment history information. Phone, gas and electricity providers are not able to report or access this information. This means that your credit report will not show whether or not you’ve paid your phone, gas or electricity bill on a month-by-month basis (but those businesses can report if you don’t pay for at least 60 days).
Consumer credit liability information includes:
The type of credit account opened
The date the credit account was opened and/or closed
The name of the credit provider and whether they are a licensee
The current limit on the credit account.
What are some of the potential disadvantages?
You may not receive credit when previously you would have been approved: The new information on your credit report will contribute to a clearer picture of your current financial situation, so credit providers may be able to see if some consumers have more credit than they can afford. A poor credit history may be more obvious.
Late or missed payments may show up on your credit report: Previously, only a default or a serious credit infringement could appear on your report, whereas now a late payment may appear on your report.
The amount of your credit limits go into your credit score: A catch in the new credit reporting system means having an unused credit limit could now damage your credit score.
These changes will take time: Some credit providers don’t use credit reports at all to make their credit decisions. Others will continue to use the current ‘negative’ credit reporting system. Credit providers that hold an Australian credit license may adopt comprehensive credit reporting, but may do so at different times.
What can I do?
As more credit providers opt in to Comprehensive Credit Reporting, it has never been more important to stay on top of your finances.
APLS Finance Solutions’ top tips to get ready for Comprehensive Credit Reporting are:
Only get credit you need and believe you can repay. Be clear about what credit you need and why you need it. Work out a budget and know what you can afford to repay.
Pay all bills on time. Pay your bills off in small amounts before the due date or consider setting up direct debits.
Speak up if you are having money troubles – contact your credit provider as soon as possible as they can often help you. You can also speak to a financial counsellor who is free, independent and confidential.
Check your Debt to Income Ratio. Work out the total of your liabilities (home loans, car loans, personal loans, credit card limits) and divide by total gross monthly income (income before taxes are taken out). A low debt to Income Ratio demonstrates a good balance between debt and income.
Complete credit application forms fully and accurately. If you don’t disclose all information about your living and financial situation, credit providers can’t make an informed decision about your ability to meet repayments. You might get the credit now, but you could run into financial stress and difficulties when payments fall due.
Be careful about constantly switching credit card providers
Close down unused credit card accounts
Think about all of your “interest free” style store cards from GE, Lombard, Radio Rentals, Myer, Harris Scarfe and the likes. If you have paid them off, but you have not yet closed the account then this will be reported as an open account. Even if you last used this facility more than 7 years ago.
Every time you change your address notify your financial institutions, telephone and utility providers, or any other credit provider you deal with and provide them with your updated details.
Don’t shop between lenders or apply with two lenders at the same time for a loan application.
Review your household bills, bank account and credit card activity statements every month. This will help you spot and investigate incorrect or suspicious transactions or find bills you may have forgotten about. It also puts you in control of your financial situation.
Use a deposit account to start saving. Set up a deposit account with low or no fees, and transfer money into the account each time you are paid. You could use the money you save to pay for holidays, cover unexpected expenses and make significant purchases.
Review your credit report at least once a year or before you apply for credit. As well as affecting your ability to get credit, incorrect listings can alert you to things like identity theft, where other people use your personal information for financial gain.
Where can I get a credit report?
“It's a good idea to check your credit report every year. As well as affecting your ability to get credit, incorrect listings can alert you to things like identity theft, where other people use your personal information for financial gain”
Your credit report details your credit history. Credit reporting agencies collect information from credit providers who subscribe to their services.
You can get a copy of your credit report from these credit reporting agencies:
Equifax
PO Box 966
North Sydney NSW 2059
Ph: 13 83 32
St Kilda Rd, Melbourne, VIC 3004
Ph: 1300 734 806
Experian Credit Report GPO Box 1969, North Sydney, NSW 2060
1300 783 684
www.experian.com.au/order-credit-report
Tasmanian Collection Service GPO Box 814H, Hobart TAS 7000
03 6213 5555
If you live in Tasmania you may need to check with the Tasmanian Collection Service and Equifax. If you live in other states, check with Equifax, Dun and Bradstreet and Experian.
You are entitled to check your credit report for free once a year. If you need to see it quickly, there may be a charge, but if you are prepared to wait a little longer (around 10 days) it won't cost you anything.
Here's what might be listed in your report:
Your personal details. Your name, date of birth, current and past addresses, employment and driver's licence number.
Consumer credit liability information. Basic information about the loans you’ve taken out and the things you’ve bought on credit. It includes information about the type of debt (e.g. a home loan or electricity account), the credit limit of the account (but not the actual balance of what you owe) and what type of payments you’re making (e.g. “Principle and Interest” or “Interest Only” payments). This information will stay on your credit report while the loan or account is open and for 2 years after it’s closed.
Repayment history information. Shown on a month by month basis for 2 years – whether you’ve made your loan payments on time. Dates your credit payments were due, whether or not you made the payments by the due date, which dates you missed any payments.
Application information. Any credit enquiry you have made over the last 5 years. This includes the types of loans you’ve applied for, and the types of things you’ve tried to buy on credit, over the last 5 years. These will be shown whether or not you were actually approved for the loan, or whether you opened the loan once approved. For example, if you shop around for a credit card and make applications to three different banks, then your report will show three applications.
Default information. If you have missed your payments by at least 60 days and the credit provider has had to made efforts to get the payments from you. Having a default on your credit report is serious and will make it much harder for you to get a loan or buy things on credit for 5 years. After 5 years, the default will fall off our credit report. If you have a default listed, you can still improve your credit report a little bit by making sure the debt is paid and settled. However, it’s important to know that once a default is listed, it won’t come off for 5 years, even if you pay the debt owed.
Other information Court judgments, debt agreements and personal insolvency agreements (for up to five years after they occurred), Serious credit infringement (for seven years from when listed), Bankruptcies (for seven years to ten years after they occurred)
Most credit scores sit between 300 and 750, and a higher score is better. It gives you more leverage to negotiate a better deal from banks, , insurance companies and utilities. Consumers with a low score may find it harder to obtain credit, or they may be charged a higher interest rate.
What will repayment history information look like?
Whether you’ve made your payments on time is represented by a number. A ‘0’ means that you made the payment on time (or, up to 14 days after it was due). A ‘1’ means that in that month you were one payment behind. A ‘2’ means that you were two payments behind and so on.
You’ll see a history of up to 24 months (depending on how long your account has been opened and when the lender started to report your payments). If your credit report shows 24 ‘0s’ in a row, this means that you haven’t missed a payment over the last two years.
How to check and correct wrong listings
How to check and correct wrong listings
When you get your credit report you should check all the loans or debts listed are actually yours and check details like your name and date of birth.
Smart tip
If there are loans or credit in your report that you know nothing about, it could mean someone has stolen your identity and taken out loans in your name. Visit the following site to learn what to do if you have had your idendity stolen:
If you don't agree with what's in your credit report, you can ask to have it changed or ask for your comments to be added to your report. It's free to update your credit report to remove incorrect listings, but your credit report can only be changed if a listing is inaccurate or out of date.
Beware of credit report scams
Don't search for credit reporting agencies over the internet, as you may find fake sites offering 'free credit reports' that are really out to scam you. If you want to contact a credit reporting agency online, type its URL into the address bar of your web browser.
If a business offers you a free credit report, they shouldn't need your credit card details. So don't provide these unless you understand why the agency is asking for them.
Never follow an email link offering a free credit report, or respond to an unsolicited email offering a free credit report - delete it. It is likely to be a scam, trying to trick you into giving out your personal information. For more information see banking and credit card scams.
Stay on top of your credit health by checking your credit report every year. Wrong listings not only affect your ability to obtain credit, but can alert you to things like identity theft.
Get in touch with us today if you'd like to know more.
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