Comprehensive (Positive) Credit Reporting
Are you aware that a new law to mandate 'comprehensive (positive) credit reporting' will come into effect on July 1st this year?
Treasurer Scott Morrison says that the Federal Government’s move is designed to increase the availability of credit and help borrowers negotiate lower interest rates. While the mandate only applies to the Big Four banks, the expectation is that others will follow suit to remain competitive.
'Positive' information will include credit limits and customer repayment history such as whether you’ve made your payments on time for accounts like your credit card, home loan and personal loan. Previously, only a default or a serious credit infringement could appear on your credit report. Morrison says, "For borrowers, this regime should lead to one thing – a better deal on your mortgage, your personal loan or business loan."
You can see my recent video about the changes here.
So, what does this mean for you?
Among other things, the following new information will be included on your credit report:
· Account open and close dates.
· Type of credit account such as a credit card or personal loan.
· Credit limit. This is the maximum amount of credit available to you for an account. If you accept a credit limit increase the new credit limit could be included on your credit history.
· Monthly repayment history on credit accounts such as mortgages and credit cards. This will reflect whether you paid the minimum amount required on your financial commitments each month on time or not.
My seasoned banking brain is a little more cynical than that of our Treasurer and I am inclined to think that it will allow banks to maintain their current margins and more easily identify so called higher risk ("computer says no") applicants. So, in effect more appealing clients will get the same deals and the rest could be penalized with some sort of tiered credit score interest rate.
In an article with Sarah Farnsworth at the ABC, the CEO of the Consumer Action Law Centre, Gerard Brody, said the data could be used to increase charges for credit. "We may see credit cards charging up to 50 per cent per annum for those deemed not to be good payers," Mr Brody said. "These sorts of toxic products exist in other countries like the USA and the UK."
The Financial Rights Legal Centre warned the CCR could see a boom in "debt vultures". "There has been a huge growth in unregulated debt-management businesses in Australia in recent years," said the centre's Karen Cox. She warned that those businesses targeted people struggling with debt, promising to clean or fix people's credit reports. "They tend to mislead people and charge thousands of dollars for bad quality services. Putting more information on credit reports will just turbo-charge these unregulated businesses," Ms Cox said.
As always, it’s a government introduced policy implemented with the best intentions but easily open to manipulation. Time will tell!
What can you do?
For one, you need to ensure you’re up to date with what is on your report and what information can be assessed by credit providers about your credit history.
You can easily get a copy of your credit file from us at no cost. In addition to understanding what is on your credit file it's good risk management to check the accuracy. Approximately 30% of all credit files contain errors that could be fixed and even worse, identity theft and fraud continue to rise. An error could be adversely impacting your credit score without you even knowing it.
You should also consider signing up to Equifax's credit alert service as they will tell you if there has been any activity on your file within 24 hours.