Credit Reporting

Why it’s now even more important to pay your debts on time. Australia has recently moved from a Negative Credit Reporting System to a Comprehensive Credit reporting system.

Initially, comprehensive credit reporting was voluntary. Few lenders took part. The big four banks avoided it, citing reporting costs. However, since 1 July 2018, the big banks and all other credit providers have been compelled to share their information, thus giving all lenders an even playing field.

Australia's previous credit reporting system was based around only making a note of negative credit events. Lenders based their assessments of a potential borrower applicant solely on whether the applicant had any negative reports on their credit history, such as missed repayments or defaults.

Banks, credit unions and other lenders could access information concerning a potential customer's credit applications – but not whether the application was approved or not. The credit report also included details of any overdue debts, defaults, bankruptcy, or court judgements.

In 2014, the government introduced comprehensive credit reporting to Australia, a system similar to that used in the US and UK. It's expected to help credit providers make better decisions about who they lend money to by ensuring they do not provide finance that is unsuitable because of:

  • Poor credit history
  • Inability to repay
  • Not meeting the client's requirements and objectives

When someone applies for finance, credit providers decide whether to approve the loan or not. They do this based on many factors – particularly the information in the application form.

Application forms tend to ask for information about a client's current debt position and financial commitments. In the past, it has been up to the customer to disclose this information accurately, with the bank unable to cross-check this information. Now, though, comprehensive credit reporting overcomes this inability to cross-check, and immediately tells the bank what finance the customer has had and how responsible they've been at repaying it.

How comprehensive credit reporting works

Under comprehensive credit reporting, banks and other lenders share the account repayment history information of their customers with credit reporting companies. The sort of information that is shared includes:

  • The name of the company the debt is held with
  • The type of the account
  • The total credit limit and the amount currently outstanding
  • When the account was opened and closed (if relevant)

The number of days the account is in arrears, and which months the account was more than 14 days in arrears.

How comprehensive credit reporting affects you

Comprehensive credit reporting was presented as something that would benefit Australians with a good credit history who wanted to take out new loans. The idea was they would be rewarded with lower interest rates and faster approvals, compared to customers with worse credit histories. However, as Australians are in more debt than ever and one in six are reported to be behind in credit card repayments, it now appears that this information sharing could lead to some negative consequences for Australian consumers and the finance industry.

We at Farley Financial are mortgage brokers that work closely with Hamilton Morello. We have mortgage broking experience in both Australia and the US and have seen firsthand how the comprehensive credit reporting system works.

If we can be of help please feel free to call us anytime. You can either drop in and see us next time you're at Hamilton Morello or give us a call anytime on 03 9890 5872.

Sean Farley

Farley Financial