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Credit reporting and how it may impact you
17 April 2015
Changes to the Privacy Act have issued in a new credit reporting system. The system has the potential to impact many individuals.
An individual’s ability to obtain credit, be it a home loan, credit card, or even a phone plan, is significantly impacted by their credit history. It is therefore prudent to be aware of what your credit history will tell potential lenders about your ability and dependability to repay their loan. The implementation of the new credit reporting system has the potential to impact many individuals.
Comprehensive Credit Reporting is a new component of the amended Privacy Act (1988) which will enable credit providers to share additional information relating to an individual’s credit position. The amendment came into effect March 12, 2014.
Only financial services credit providers, such as banks and credit unions, can share information relating to repayment history. Telecommunications and utilities companies may not share this information.
What is the change?
Australia used a ‘negative’ reporting system, which told potential credit providers about previous credit applications and problems, including bankruptcies, judgements, loan defaults etc. The new system has moved us to a more comprehensive ‘positive’ reporting which still reports aspects such as defaults, but also captures five new elements of data for sharing:
Date account opened
Credit limit of the account
Type of credit
Date account closed
Repayment history - refers to the monthly repayment history over the previous 24 months.
What many consumers don’t realise is that being just five days late in their repayments is sufficient to be reported on their credit file.
In addition to enhanced reporting, there are greater fraud protections designed to minimise the likelihood to new accounts being opened in your name should you fall victim to identity fraud.
Why the change?
The additional information available is designed to allow lenders to better assess the credit worthiness of borrowers. Most lenders believe that payment history is evidence of a borrower’s ability and willingness to meet loan commitments.
Benefits for the consumer
Although more information is collected, lenders will be able to make more informed decisions in terms of a customer’s ability to repay loans. As lenders will be able to see a full picture of credit held with other organisations, they will be better able to assess whether a consumer is/may be over extended, which can potentially cause financial hardship.
There are enhanced provisions to protect your personal information should you become the victim of identity fraud. If you are concerned personal details have fallen into the wrong hands, you can ask that credit reporting agencies put a ban on providing your credit report for 21 days. During this time, if a credit provider is asking for your report - which they would do if someone is trying to get credit – the credit agency must receive written permission from yourself.
Also, the limit for listing a default will be increased from $100 to $150.
How can I manage my credit?
Sound money management habits will help you maintain a clean credit report and improve your chances of obtaining credit when it is required. Things to consider include:
Prepare a budget so you know how much your repayments are and when they are due.
Only ask for credit which you need and will be able to repay.
Implement a savings plan.
Speak to your credit provider early if you are experiencing financial difficulties.
Want to know more?
For more information on the privacy Act changes to credit reporting, go to www.creditsmart.org.au
A credit report is often overlooked until it causes problems. Reviewing your credit report allows you to implement measures to help ensure your credit history is sound.
First published: Westpac Davidson Institute.