Meeting your credit card and loan repayment deadlines may previously have gone unnoticed by lenders, but this is all set to change with the enforcement of comprehensive credit reporting in Australia.
When you apply for a loan, your credit file will now show lenders what you have done right as well as what you have done wrong. Comprehensive credit reporting (also known as positive credit reporting) is a great chance for those with strong credit histories to access better interest rates and more competitive loans.
What is comprehensive credit reporting?
Previously lenders were only able to access the parts of your credit history you probably wish were left untold: overdue payments, defaults, court judgments and bankruptcy.
The positive story about how frequently you made payments on time and how well you stayed within your credit limit was left unsaid.
Comprehensive credit reporting gives lenders a detailed and more balanced picture of a borrower’s credit history because both positive and negative information is now available on credit files.
What does positive credit information include?
New information appearing on your credit file may include:
- Two years of repayment history for accounts such as credit cards, home loans and personal loans
- How often you make repayments and if you make them by the due date
- Any credit you have applied for and if you’ve been approved or rejected
- The type of credit accounts you open and the name of the credit providers
- The dates you open and close accounts
- The current limit on your credit accounts
Not included is data about your utility or phone bills. You will only see these mentioned in your credit file if you’ve missed a payment by at least 60 days.
What if your credit history is low on positive data?
Comprehensive credit reporting gives you an incentive to break the habit of late repayments. Turn over a new leaf and show lenders you can improve your credit health. If you start paying off your credit card and loans on time, this will demonstrate you are getting serious about responsibly managing debt.
If you’ve had a payment issue in the past like a default, there was no opportunity to make amends under the negative credit reporting system. Now with positive credit reporting, lenders have a more comprehensive picture from which to build a credit decision. This can work in your favour if you’ve been diligent about making your repayments on time ever since.
When are these positive credit reporting changes happening?
Although comprehensive credit reporting has existed in Australia since 2014, it was an opt-in system so many credit providers chose not to share their data with credit reporting agencies.
This has now changed, with government legislation making it a requirement for the Big Four banks to take part. Starting 1 July 2018, the banks have 90 days to supply 50% of their data, and the remainder by the middle of next year.
The legislation allows the banks to select which accounts they provide new data for. If you’re checking your credit file, this will explain why you may notice additional information appearing in some accounts but not others.
Your credit score might go up or down in the coming months as a reflection of new data making its way into your credit file.
Do home loan borrowers benefit from positive credit reporting?
Your credit file and credit score are significant factors lenders consider when assessing your home loan application to determine whether you are approved and how much you can borrow.
If you pay your bills on time, this helps create a good impression with lenders and may give you more bargaining power. It’s particularly useful if you’re a young first home buyer with a short credit history because lenders can now see your positive repayment behaviour and decide whether to extend credit based on this information.
Get in touch with your local Yellow Brick Road mortgage broker to find out more about how positive credit reporting can be an advantage when applying for a home loan.