Understanding the new credit reporting system

Comprehensive credit reporting commenced on 12 March 2014 under changes to the Privacy Act and was the most significant change to Australia’s credit reporting system in over 25 years. Comprehensive credit reporting changes the level of consumer credit information that can be held on an individual’s credit file. Previously personal credit files could only hold ‘negative’ information like credit enquiries (applications) and defaults. Under comprehensive credit reporting a person’s credit history will include ‘positive’ credit information such as if you make your credit card and loan repayments on time. The downside is, if you don’t make your repayments on time, this too can be held on your credit report.

What are the benefits for consumers?

• Highlights good credit behaviour: Australians will be able to demonstrate recent good credit behaviour because the new system records if you have made your credit payments on time.
• Faster recovery from adversity: You may improve your credit profile more quickly after an adverse financial event by showing good credit behaviour, potentially countering the impact of a default up to five years old.
• Quicker to establish a credit report: For individuals new to consumer credit, the use of comprehensive information means that you can build credit worthiness more quickly. For example, if you are a young person or a recent arrival from overseas.
• A more balanced system: It is a more balanced and transparent system for consumers who already have a good credit history, as well as those who previously had trouble meeting their financial commitments - as it may enable them to access quality credit where they may not have been able to previously.
• A better deal with providers: With more comprehensive credit bureau information and monthly updates, having a credit profile and showing good credit behaviour will become more important in accessing credit at the best price.

How will my credit report change?

More information can be held on your credit report. This new information includes:

• Credit account information including:
  • Account open date and close dates
  • 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.
• New arrangement information

Please note you may not see changes to your credit report immediately.

The change to comprehensive credit reporting will have an immediate impact on 12 March 2014 if you have particular default information on your credit report: 

- Defaults less than $150 have been removed from your credit report. The minimum amount for a default is now $150.
- If you have a serious credit infringement listed on your report and this has been paid, it will be removed from your credit report after 5 years.

Here are some examples of how the new credit reporting system may impact consumers:

Example 1
In the past if you didn't pay a bill and were more than 60 days' late, a default may be listed on your credit report. This black mark which stays on your credit report for five years can result in being declined for credit, or an inability to access quality credit and get the best rate. This default information, together with the name of your credit providers, is the only account payment information a credit provider would see on a credit check when assessing an application for credit. The new comprehensive credit reporting system will include other account information such as whether or not you have paid the minimum payment required on each of your financial commitments on time. Depending upon your repayment history, this may allow you to demonstrate recent good credit behaviour, potentially countering the impact of a default up to five years old.

Example 2
If you shop around for credit and have a number of credit enquiries (loan applications) on your credit report, this information is predictive of financial stress. These enquiries stay on your credit report for five years and can be looked upon less than favourably by credit providers, potentially limiting your ability to get a loan approved. Under the new comprehensive credit reporting system your credit report will show details of credit enquiries as well as your open and closed accounts, along with the credit limits giving lenders a more detailed picture of your current financial commitments. This may enhance your credit profile and help you to get credit you want.

What can I do?

A good credit history generally makes a person more attractive to credit providers. Under CCR, individuals will be able to show recent good credit behaviour by making credit repayments on time. For those who are sometimes late paying a mortgage, credit card or personal loan, now is the time to be proactive, pay bills on time and adopt good financial habits. Here are some practical tips:

• Pay bills and loans on time - Consider setting up direct debits and schedule loan repayments for your pay day.
• Keep track of your credit commitments - Only apply for credit if and when you need it.
• Having trouble meeting repayments? If you are in financial difficulty talk to your credit provider who may assist.
• Get your credit report for free and check the information is correct. You can even monitor changes through subscription packages from Equifax with credit monitoring alerts that alert you to changes to your credit report..