Proposed changes for banks and lenders to include positive credit reporting data will make life easier for anyone looking to take out a mortgage.
Suzanne Steele, managing director of credit bureau Experian, told Australian Broker
that Australia was at odds with the world in how consumer data is reported. Out of the 19 countries that Experian has a presence in globally, only Australia and Brazil do not report on positive credit data.
“It’s slightly unusual in that – in just about every other country in the world – they report positive data as well,” she said.
Currently, lenders solely report on negative data such as if a consumer misses a loan repayment or defaults. However, this is set to change over the coming year, Steele said.
“About three years ago in 2014, it was deemed that actually it would be more beneficial to Australian consumers if the laws were amended to enable positive reporting to be shared with credit bureaus. But it wasn’t mandated and probably rightly so. We’re more advocates of self-regulation than mandatory.”
The added work needed to compile this additional positive information has required a significant technology change, Steele said, meaning that the changes were not immediate.
The Productivity Commissioner’s report into data availability recommended that the banks should be ready by 30 June. If this deadline passes, the government may mandate the introduction of these changes by 31 December, she added.
“We’ve been working with the banks who are already sharing positive data with the bureau as they come online. They’ve done the technology change. At best guess, I would say that over the next nine months, they will be in a position where they’re starting to share that data without it being mandated.”
“Australian consumers who don’t know that this is coming and who don’t check their credit files should change their behavior now. When the banks start sharing this positive data, their credit scores will be in a much more positive place than they otherwise would have been.”
As for mortgage holders, these changes will dramatically alter how lenders assess loan applications in the future.
“As a lender comes on board and starts assessing a potential prospect for a mortgage, if that person hasn’t had a lot of credit history and hasn’t got any negative data, then effectively the lender is making a judgement based on a very thin amount of information when it comes to responsible lending.”
With positive data, banks will be able to see that potential lenders have paid credit cards on time, have never defaulted on their loans, and that all their accounts are in line.
“First of all, the mortgage lender has much more information in order to make a credit decision. Secondly, it’s fairer for consumers because you don’t want to make decisions on the bad information. You need good information as well.”
Steele called upon brokers to educate consumers around these changes as well as on how to manage their credit files.
“That then helps all of that decision making whether you’re a consumer, a broker or a lender with regards to matching products with people. Having access to that positive data is a real positive thing.”
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