From 1 July 2018 Australia changed to a system called "Comprehensive Credit Reporting" (CCR), where more positive information about your credit history is included on your file. This means your credit score is likely to have changed since the CCR came into effect.
Before we look at what changes CCR have made to credit reporting let's first understand what your credit file is.
What is a credit file?
If you are going to apply for any form of credit - including a mortgage/home loan or credit card - lenders will access your credit file to determine your credit score. This tells them if you are 'creditworthy', and able to service or pay back the line of credit.
Your credit file is a profile of your credit history including all the accounts you have held, and if you have ever defaulted on these. It includes personal information about you as well as payment history information, previous credit applications and any court judgements against you.
The bottom line is that if you have ever defaulted on a loan or been late with a payment it will be on your credit file. You also need to know that utility and mobile phone companies are not licenced credit providers - so their data is not shared with credit bureaus, and therefore will not appear on your credit file.
"The bottom line is, if you've ever defaulted on a loan or been late with a payment, it will be on your credit file"
It is important you know what is on your credit file, as it could determine if you are approved or rejected for a home loan or other line of credit. Your credit file is held by private companies called credit bureaus - including industry heavyweights Equifax and Experian. They depend on banks and other financial institutions to provide them with credit reports to build up a picture of your credit history. Information is generally held for 2 - 5 years.
What is Comprehensive Credit Reporting (CCR)?
The major change that CCR has brought in is that positive data - hence the title 'positive reporting' - is now recorded, such as if you make all your payments on time. This includes historical repayment information and consumer credit liability information.
In addition, after 1 July 2019, the big four banks (NAB, CommBank, Westpac and ANZ) will share 100% of their data with credit bureaus - previously they were only required to share 50% of your credit data.
Compared to the previous reporting system, CCR gives credit providers a fuller picture of your financial position and credit history. The additional data should also enable them to make a more informed decision about your creditworthiness.
"CCR gives credit providers a fuller picture of your credit history and enables them to make a more informed decision about your creditworthiness"
Why did Australia change to CCR?
CCR was actually optional for financial providers from 2014, but due to slow uptake, the government decided to legislate for it in 2017. The main reason behind this was to provide a more complete picture of an individual's credit record.
What does CCR mean for you?
If you always make your payments on time and have a 'clean' credit record, this positive behaviour will show up on your credit file. This could make it easier for you to qualify for a line of credit, like a home loan or credit card. It also means your repayment history will be visible, including if you have made the minimum payment required or if payments have been made on time or not.
What does CCR means for lenders?
For financial institutions CCR means greater clarity on lending decisions, which should protect them from individuals likely to default.
What information will be in your credit file?
Besides the basic personal information and credit data initially provided, CCR obliges financial institutions to provide additional comprehensive data from 1 July 2019 - listed in the table below. They do have a 90 day window from this date to provide the information - so there could be a lag before you see any changes to your credit file.
|New data recorded under Comprehensive Credit Reporting (CCR)|
What does CCR mean for your ability to obtain credit?
As we have seen above, CCR could be a positive factor and help you obtain credit more easily if you are responsible with your financial commitments - particularly any repayments you make to home loan providers, credit card providers and other lines of credit.
If you have not managed your finances responsibly, CCR also means there will be nowhere to hide, as comprehensive details will be recorded in your credit file - and reflected in a poor credit score or rating.
"CCR could be a positive factor and help you obtain credit more easily if you are responsible with your financial commitments"
How does CCR affect mortgage applications?
In theory CCR should mean fairer decisions from mortgage providers, as they will have a more balanced and detailed picture of your credit history.
Other countries - like the USA and UK - have moved to a risk-based pricing, which rewards people with a good credit score, but also penalises people with a poor credit rating. This could be where the home loan market in Australia is going, as financial providers look to limit their exposure to bad debts and refine their product range.
How does CCR affect individual credit scores?
If you have just started to build up a credit history, CCR could help you access credit sooner, as 'positive' reporting means your file will have more data recorded - rather than just negative events. Under CCR, a single negative event may also not be as significant as before, as there will be positive data and a more comprehensive picture of your credit history for lenders to assess.
"Under CCR, a single negative event may not be as signifcant as before"
Checking your credit score or credit rating
If you are thinking of applying for a home loan or any other line of credit, you should apply or make a copy of your credit score from one of the credit reporting agencies. You will receive a score anywhere from 0 - 1,200 which is then rated on a five-point scale.
Remember that your score is not static and changes depending on your behaviour, so you need to check it regularly for an idea of what it currently is. CCR, and the 90 day window financial institutions having to provide 100% of reporting data, also means credit scores will change from November 2019 onwards.