The introduction of the comprehensive credit reporting (CCR) regime means lenders can build a much clearer picture of your worth as a borrower than they’ve ever been able to before.
With a larger magnifying glass prying into your credit history, how will it affect your ability to get approved for a home loan?
What is positive credit reporting?
Prior to the introduction of CCR or positive credit reporting regime in March 2014, Australia effectively operated under a “negative” credit reporting environment.
What that means is that credit agencies such as Equifax, which acquired Veda Advantage, Australia’s largest credit reporting bureau, only recorded the following information on your credit file:
- Basic information such as your full name, date of birth, gender, address, previous address, drivers licence number, employer and previous employer
- Loans that you have applied for in the last five years are listed as credit enquiries
- Loans or accounts where you are more than 60 days overdue are listed as defaults
- Court judgments
- Court writs
- Bankruptcy history (including Part IX history)
Although credit agencies will continue to collect this information, a much fuller picture of your repayment history information can now be held and disclosed to other lenders and credit providers.
Specifically, your credit history now includes:
- The date a credit account is opened
- Current limit on credit accounts
- The nature of the credit account
- The date a credit account is closed
- 24 months account payment history: Monthly repayment history will reflect whether you paid the minimum amount required on your financial commitments each month or not
- A “default” is listed on your credit file for being late by 60 days or more and for amounts you owe over $150 (previously the amount was $100). It will still remain on your file for 5 years.
Note: Repayment history data can only be provided by and shared with licensed credit providers. This doesn’t include telephone and utility companies but lenders will be able to see mortgage and credit card accounts.
Not sure what your credit file looks like? Call us today on 1300 889 743 or fill in our free assessment form and we can tell if you’re in a position to get a home loan.
Can lenders see this new data on my credit file?
Consumer credit providers such as lenders must opt in to CCR before they can view this positive data. If they don’t opt in to CCR, they are unable to view any of the new data elements.
Despite this, the new information is reflected in your Equifax Score (previously VedaScore).
Depending on the lender and the weighting they give to the Equifax Score, the new credit reporting system is already having an influence on how banks are credit scoring.
Read our guide on credit scoring to discover how a credit score can make or break your application.
How will positive reporting help me get a loan?
Since banks and lenders are essentially able to get a more “comprehensive” view of your credit history, positive credit behaviour can help negate bad behaviour. That’s because the new regime highlights both good and bad credit behaviour.
For example, you may have a number of credit enquiries on your credit file that will work against you when it comes time to apply for a home loan. Ordinarily, if you have a lot of debts, it’s automatically assumed that you’re potentially an unreliable borrower.
With positive credit reporting though, it will show that your repayments are being paid on time, which can have a positive effect on your Equifax Score.
So, essentially, CCR means you can recover faster from financial adversity and rebuild your credit profile.
It also means:
- It’s quicker to establish a credit report: Great if you’re new to consumer credit, such as a first home buyer or a new migrant to Australia. Generally speaking, banks don’t have enough information if you’re in this situation and tend to judge you as a higher risk.
- A more balanced system for everyone: Both individuals who have had credit problems in the past and those with a good credit history will benefit because it’s rewarding the good and giving people who have had credit problems in the past a fair go.
- Get a better deal on your home loan: With more complete credit bureau information and monthly updates, Australians who previously fell into the “bad credit” category now have the chance to demonstrate good credit behaviour and be in a better position to get a good interest rate and a more competitive home loan overall.
- Cut down on application time: The changes will potentially reduce the amount of paperwork applicants need to provide. Lenders will be able to verify credit behaviour by collecting this information from the credit bureau rather than you as the applicant.
Although some of these changes will make it easier to get a home loan, some of the information that credit agencies have access to will make it harder.
How can CCR work against you?
Depending on the lender you apply with and the amount that you borrow LVR, your Equifax Score could be dragged down by positive credit reporting.
If, for example, you only have a small amount of debt but your payments are not being maintained, a greater consideration will be given to your Equifax Score when borrowing at a higher LVR (95% of the purchase price).
Under the new rules, you could be hit on two fronts by being flagged for multiple credit enquiries and an unreliable repayment history, dragging your Equifax Score even lower than it previously would have been.
With credit limits also included on your credit file under CCR, any credit limit increases you sign up for could be included on your credit history and suggest that you’re having trouble managing your finances.
What hasn’t changed?
The following information will still be recorded on your credit file and have an impact on your Equifax Score:
- Personal details: name, date of birth, address and employment information.
- Credit enquiries: credit or loan applications
- Overdue debts like payment defaults (paid and unpaid)
- Serious credit infringements
- Personal insolvency information, court writs, court judgments and directorship information
How can you adapt?
- Only apply for credit or a loan if and when you need it: Do your research before applying for a home loan and go with a lender that will take a common sense approach to your situation.
- Do not overdraw your credit card.
- Make all of your repayments on time: Set up direct debit, have loan repayments scheduled for your pay day and maintain a savings account with a pool of money to ensure you don’t miss your payments.
- Pay any defaults listed on your credit file.
- Stay in your current job and living address until you apply for your loan: This basic information will still play an important part when banks generate their own credit score.
- Show that you are good with your money by making regular deposits to a savings account.
- Talk to your credit provider if you’re in financial trouble: They may be able to help you by setting up a payment plan.
- Ensure your credit file has accurate and up-to-date information: If you’re a Home Loan Experts customer, we can apply to get you a free copy of your credit file and guide you through what it means for you and your ability to get finance.
Speak to us and we can compare a number of different options from a range of lenders for you and do it without adding yet another unnecessary enquiry to your credit file.
Did you know that not all banks give the same weighting to your Equifax Score?
Some will score you more favourably depending on the specifics of your situation and there are even some that don’t use credit scoring at all. This may be your only option when trying to get a bad credit home loan.
Call us today on 1300 889 743 or complete our free assessment form and one of our brokers can tell you how we can help.
What is the Repayment History Information (RHI) reporting system?
Lenders and credit providers that have signed on to positive credit reporting have been providing Equifax with repayment history information on a monthly basis.
It basically shows whether you’ve been making your payments on time on your credit accounts over the past two years.
When lenders make a CCR enquiry with Equifax, the report is displayed in a table format with each month over the past two years assigned with a specific score.
So for 12 months, the repayment history report will look something like this:
What does each CCR code mean?
The codes are set out under the Australian Credit Reporting Standards (ARCA) and are a quick way for lenders to scan your repayment history. They stand for the following:
- O: Account is paid on time
- 1: 0-29 days overdue
- 2: 30-50 days overdue
- 3: 60-89 days overdue
- 4: 90-119 days overdue
- 5: 120-149 days overdue
- 6: 150-179 days overdue
- X: 180+ days overdue
- C: ‘Account is closed’
- A: ‘Not associated’
- R: ‘Not reported’ – the bank or credit provider didn’t provide payment history for this period, which is a fault with the credit provider, not necessarily you as an account holder.
- P: ‘Pending’ – purchases made with a credit or debit card that are pending (for up to 5 days) but have been deducted from your available funds until the merchant finalises the payment.
- O: ‘Other’
- T: ‘Transferred’ – a balance transfer of your debt with one lender to another usually to save on interest repayments on a credit card or store card.
Why introduce positive credit reporting?
Comprehensive credit reporting isn’t actually a new thing. There have been many studies undertaken supporting the benefits of positive credit reporting since the Commonwealth Privacy Act was introduced in 1988.
In fact, most other developed nations such as the United States employ CCR in order to better screen potential borrower.
The Australasian Retail Credit Association (ARCA) had long been demanding change to the previous “negative” credit reporting regime in Australia and, by December 2012, the Australian Privacy Commissioner requested that ARCA develop the new credit reporting privacy code.
After consultation with the public and other relevant stakeholders throughout 2013, the new reporting regime came into effect in March 2014.
Since then though, the new reporting system remains voluntary and not all lenders are sharing customer credit histories with fellow credit providers and lenders.
In fact, many banks are not sharing more than existing default reports until a review of participation in the new regime takes place in 2018.
Why are some banks against comprehensive credit reporting?
In theory, the mortgage industry supports the changes but making the new regime mandatory will be complex and costly for many banks who have been operating in a “negative” reporting environment for years.
More so, they are concerned about sharing more than basic customer information with competitors.
Apply for a home loan today
If you’ve been thinking about getting a home loan, call us today for a free, no obligation assessment.
Although positive credit reporting has come into effect, it’s not certain if and when all lenders will jump on board.
Our mortgage brokers are credit experts and we’re always in the know when it comes to bank policy changes. We can properly assess your situation and find lenders that will accept your case and offer you a competitive home loan package complete with a great interest rate.
Get in touch with us by filling in our free assessment form or by calling 1300 889 743 today.