Recent changes to the Privacy Act 1988 now give banks greater insight into your credit history.
But the big question is, how will this affect the way lenders view your home loan application? Read on to find out more.
What has changed?
On November 29 2012 the Senate Committee passed The Privacy Amendment (Enhancing Privacy Protection) Bill 2012, which both streamlined the privacy principles, and changed the credit reporting provisions under section 6, Schedule 2 of the Act.
The amendments allow lenders and mortgage insurers to view information about:
- The type of account that you hold.
- The date the accounts were opened.
- The date any accounts were closed.
- The credit limit on any credit cards, personal loans, mortgages or other loans that you have.
- Information about your repayment history for the last 24 months, including the date your debts fall due and whether your have missed any repayments.
- Whether you are, or were previously bankrupt.
- Whether you have any defaults, or if you are in a debt agreement.
- Other public information that might be relevant to your credit worthiness.
Why has it changed?
Giving credit providers more power and information will allow them to more accurately assess credit risks so that they can make better credit decisions.
Banks will know whether you are responsible with your money and can repay your mortgage without falling into arrears.
It is hoped that in making better lending decisions, there will be reduced levels of indebtedness and a lower default rate. This is particularly important in light of the Global Financial Crisis (GFC).
The changes also aim to enhance responsible lending practices under the National Consumer Credit Protection Act 2009 (NCCP) and keep Australia in line with the rest of the world.
How this affects your mortgage application
The amendments will make it faster and simpler for lenders to assess your eligibility for a home loan.
Lenders may no longer ask you for statements which outline your existing debts and repayment history.
They will now have access to most of this information without the need to obtain it from you.
It is anticipated that banks will focus more on your credit history and will use this to determine your credit score.
The way that banks calculate credit scores are all based on different systems, but generally your ability to manage debt and your current repayment pattern are taken into account.
What if you are an existing customer?
As it currently stands, banks are likely to undertake a more accurate risk assessment of those who are their ‘existing customers’. This is primarily because banks find it easier to assess customers who use them as their Main Financial Institution (MFI).
This is where you have your cheque account with the bank, your salary is paid into it and you may have your credit cards and loans with the bank as well.
As such, the bank will know you well, can view your saving and spending pattern and is more likely to lend to you if you make timely repayments.
Whilst banks still lend to customers they don’t have full credit information about, they take less risks and are more inclined to lend to those they are familiar with.
With the changes to the Privacy Act, banks will ‘know you’ regardless of whether you have banked with them.
Improve your credit score before the change
The Bill is set to commence in March 2014, so before the changes take effect, what can you do to increase your chances of getting a home loan?
A large majority of banks place a heavy emphasis on credit scoring.
For this reason, it is essential that you make all of your repayments on time, every time for all loans and bills.
Even just a few missed payments, due to mistakes or forgetfulness, could impact your ability to get credit in the future.
Banks know that people who are late with payments tend to be higher risk borrowers. Any information they see that reflects your lack of financial responsibility will reduce your chances of approval.
Before applying for a home loan
When applying for a mortgage, ensure that you include any mortgages or credit cards on your statement of assets and liabilities.
Lenders are already good at spotting ‘missing debts,’ however now they will be able to view all of your credit history and are likely to decline your loan for non-disclosure.
They will assume you are committing fraud even if it is just an honest mistake!
Recent changes by Genworth Financial have highlighted just how tough a stance the lenders and mortgage insurers have decided to take.
Speak to us
Don’t let the new changes affect your ability to get finance! Our expert mortgage brokers can help you resolve your credit issues before you apply for a loan using our prepare to buy program.
We know how to ensure that credit providers view your loan application in the most favourable light.
Please speak to our team on 1300 889 743 or enquire online today and we can contact you to discuss your situation.