Why every borrower needs to know about “comprehensive” credit reporting
Australia’s credit reporting system is in for a major shakeup and it has the potential to affect your ability to get a loan. The change involves the introduction of “comprehensive” credit reporting and it will be here in March 2014.
The new regulations will give lenders far more information about your credit history, allowing them to more closely scrutinise your credit worthiness and calculate the risk of you defaulting on a loan.
What sort of information will be available to lenders? They will be able to view the last 24 months of your credit repayment history on all open credit accounts in your name. This could include your mortgage payments and credit cards.
Lenders will also be able to see all of your past and current credit accounts and enquiries, meaning they will know how many credit accounts you have and when each account was opened and closed. This information will clearly be useful when determining your ability to take on additional debt.
How do the new regulations compare to the current arrangement? At the moment, lenders can only access a limited amount of information about your credit history, such as your recent credit applications, any major credit infringements or whether you wrote any cheques for $100 or more that have been dishonoured twice.
Lenders currently can’t find out whether your previous applications were approved or declined or whether you actually pay your loans on time, just that the applications were submitted.
An inevitable outcome of lenders having more information about credit applicants is that it may become harder for some people to obtain a loan. If you have black spots in your credit history, it’s going to be nearly impossible to hide them.
But are there any potential benefits to borrowers? Theoretically, yes. Firstly, if the new regulations allow lenders to better assess risk and minimise defaults, it could drive down the overall cost of credit. Secondly, lenders may start to offer discounts and incentives to borrowers with good credit histories.
All this extra information will give lenders a more comprehensive picture of people’s overall financial position, which could perhaps lead to the development of more tailored products.
Only time will tell how the new regulations will impact the marketplace. But clearly everyone needs to be more conscientious about keeping a clean credit history. It’s never been more important to make sure you pay your bills on time because a bit of carelessness could easily end up affecting your ability to get a loan in the future.
Also, it makes sense to regularly check your credit report, so you can resolve any issue before they become a serious problem.