Millions of Australians could directly benefit from coming changes to Australia’s credit reporting system, according to new research.
Proposed changes soon to be debated in parliament would require the big four banks to report repayment information on credit accounts, enabling consumers to show recent positive repayment behaviour.
From 1 July the major lenders were given three months to share at least 50% of their credit information with credit bureaus.
Data and analytics company Equifax said it is “good news” for Australians who pay their mortgage on time, as this behaviour gives direct evidence of their financial capability.
The credit reporting changes also offer hope for people who have previously been through a period of financial difficulty, often because of a period of unemployment or relationship breakdown.
Data from the Equifax consumer credit bureau reveals there are approximately 200,000 Australians who have a credit report that only shows an historic black mark of a default, judgement or bankruptcy that occurred more than four years ago.
That single piece of historic negative information can exclude a person from accessing new credit or getting better-priced credit for many years after the event took place.
The company’s group managing director Australia and New Zealand, Mike Cutter, said, “These changes are about financial inclusion, giving people who have an old black mark on their credit report a chance to show they have recovered from a rough patch and are now making the regular repayments on their credit accounts.
“Showing that these consumers are back on track is a major benefit of comprehensive credit reporting, and one that may allow them to access cheaper rates or a better deal.”
The reforms are also good news for those who pay their minimum mortgage payments on time every month.
Cutter said, “The majority of consumers make repayments on time each month, but this has not been shown on their credit report until now.
“These reforms are about providing a more accurate picture of consumers and giving them the opportunity to showcase their positive repayment behaviour.”
The National Consumer Credit Protection Amendment (Mandatory Comprehensive Credit Reporting) Bill 2018 is set to be debated in parliament in the next few weeks and would require the big four banks to report when minimum payments on a credit card, mortgage or personal loan are being made on time.
This repayment history would be reported alongside additional information that will better show the actual credit commitments position of a consumer, rather than just how many credit enquiries they have made.
While it is only the major banks actually required to share credit information at the moment, smaller lenders are also joining CCR.
ME Bank’s chief risk officer, Carlo Cataldo, said the success of CCR relies on everyone sharing data.
He said, “A successfully operating CCR will ultimately improve competition among banks and will have broader economic and consumer benefits.
“CCR helps all banks, including ME, provide better service to market segments which were previously unavailable through limited access to data.
“For example, ME will be able to lend with greater certainty, reducing the costs of bad loans over the long term as well as enable better compliance with responsible lending obligations.
“Customers will be the biggest beneficiaries of the new regime. Banks will have a better picture of customers’ credit worthiness because they’ll be able to assess them on good payment behaviour, not just bad.”
ME is working to participate in CCR as soon as possible, with the bank currently testing its data sharing capability.