How comprehensive credit reporting affects you

When you apply for any type of loan in Australia, including home loans, the credit provider obtains your permission to access your credit report. Credit reporting helps the credit providers evaluate your repayment history before they go ahead and sanction your loan.

Under Comprehensive Credit Reporting (CCR), credit providers can seamlessly obtain all the financial information about you from credit reporting bodies. It can help credit providers to make a more accurate assessment of your credit history before approving your loan application. Read on to learn more about what is a CCR and what are its main benefits.

CCR refers to the sharing of comprehensive customer information such as credit history and credit data between credit providers and credit reporting bodies such as Equifax, Experian, and Illion.

It was instituted back in 2017 as part of the Australian government’s effort to make available a more comprehensive picture of a customer’s credit data and allow credit providers to receive additional information through a credit report. Such information may have an impact on the lender’s decision to provide a loan to a customer.

Until CCR was launched, credit reports only flagged negative credit reporting such as hard credit inquiries, payment defaults, and credit infringements. With CCR, credit providers can also learn about the opening and closing date of accounts, the types of credit accounts held by a customer, the credit limit on each account, financial hardship faced by a customer, and the repayment history of the customer in the past 24 months.

Thanks to the granular information shared by credit reporting bodies, credit scores have become more accurate. It has made it easier for credit providers to determine the creditworthiness of a potential borrower. The sharing of data is safeguarded by the protections under the Privacy Act and the privacy and reporting policies of respective credit providers.

CCR enables credit reporting bodies to conduct credit checks and share your credit information with credit providers to help them form a more comprehensive view of whether or not you are a reliable borrower. They review your credit history and go through your credit data to make an informed decision about your ability to repay debts on time.

This means that it is even more important to pay your bills on time so that your repayment history doesn’t set off any alarm bells. The higher your credit score, the better are the chances of obtaining a loan at a lower interest rate and more favourable terms. To ensure that you never fall behind on your payments, you can set up automatic payments.

However, it only applies to direct borrowings to your name. If you are a guarantor for a loan borrowed by a family member, any payment defaults on such a loan will not affect your credit data or repayment history.

You may also notice that your credit score may have changed even without you taking on any new debt -- this is because of the additional information supplied due to CCR. CCR is mandatory, and as a customer, you cannot opt-out of it.

Also, bear in mind that comprehensive credit reporting doesn’t only record positive credit reporting. In case you default on your loan or repay a credit card bill a few days after the scheduled date, your credit report will flag those. As a result, your credit score may get impacted. In fact, credit scores can decline up to 20% due to single payment default and result in a 40% dip if you miss three or more consecutive repayments.

It also includes credit data pertaining to current, open, and closed accounts. So be mindful of your accounts, especially if you are a customer of multiple banks. Close any account that you are not using to clean up your credit history and borrow loans only when you need them. If you take on a significant debt such as home loans, make sure to repay your instalments on time and keep a close eye on your credit report to highlight any inconsistencies.

Negative credit reporting refers to recording only negative financial events of a borrower’s credit history in their credit history report.

Negative financial events include:

• Delayed repayments of instalment loans or credit card dues
• Defaulting on payments
• Multiple applications for loans and credit cards at the same time
• Bankruptcies and insolvency filing
• Judgement against any debt

Prior to the reformation of credit reporting legislation in 2017, credit reporting bodies followed negative credit reporting. But credit reports prepared on the basis of such reporting presented incomplete information about an applicant. For instance, a lender could see the credit inquiries initiated when a borrower applied for fresh credit but had no way of knowing whether the application was approved. Similarly, while a lender knew about credit infringement details of a borrower, they did not have information to assess whether the borrower is otherwise prompt with managing their credit obligations.

Positive credit behaviour can improve your credit score

With negative credit reporting, even a single default from a few years ago could significantly impact your current credit score. However, as positive credit reporting takes into account your good credit behaviour, it evens out the negative payment history, which eventually improves your credit score.

For example, if you failed to repay a credit card bill two years ago but have been paying on time since then, comprehensive credit reporting will present a balanced picture to the lenders. As credit reporting agencies will consider more information to calculate the score, a single repayment is unlikely to bring down your score significantly.

But bear in mind that despite the inclusion of positive events in your comprehensive credit report, repeatedly missing payment obligations would ultimately damage your credit score.

Builds creditworthiness

If you are a new borrower with a relatively short credit history, it is usually challenging to borrow as lenders are unsure about your creditworthiness.

The information asymmetry in negative credit reporting prevents a credit provider from accurately assessing the risks posed by any borrower. Moreover, taking a decision solely on the basis of negative reporting can actually mean rejecting a creditworthy borrower and choosing a bad borrower.

CCR check adds more information to your credit file, making it easier for creditors to decide whether you can borrow from them.

Helps lenders to lend responsibly

Under Australian laws, lenders have an obligation to lend responsibly. This refers to extending credit on terms that borrowers can actually honour to minimise the chances of bankruptcies and bad debts.

Mandatory comprehensive credit reporting provides a better understanding of a borrower’s existing financial obligations. Using comprehensive credit information can help lenders meet their responsible lending obligations as they can avoid lending to someone who is already significantly indebted and may end up as a defaulter.

You can bounce back from financial adversities

Defaulting on debts counts as negative credit behaviour and impacts your credit score. It is also harder to recover from such events. However, given that CCR also captures positive information about your credit history, it helps you to demonstrate good credit behaviour despite defaults in the past. For example, if you failed to repay a gas bill from five years ago as you shifted to a new house but have been regularly repaying your bills since then, you can counter the impact of the past default.

It offers a more balanced system

Since it takes into account both negative and positive reporting, it presents a more balanced picture to the credit provider. This makes it easy for borrowers to apply for loans who would have otherwise found it difficult to get a new line of credit due to poor credit score or credit history

Borrowers with outstanding commercial tax obligations may get impacted

Credit reporting bodies have entered into agreements with the Australian Taxation Office to obtain data regarding commercial tax default. As a result, business tax debt details can also get flagged in the CCR report.

In certain instances, this can result in withdrawal of ongoing lines of credit to protect the interests of the lenders.

Doesn’t throw light on how much a borrower owes

If you have active credit cards, your comprehensive credit report will only show the total credit limit of your cards. It doesn’t provide any information about your current outstanding.

For instance, if you enjoy a credit limit of $4000 each on the three credit cards you own, the lender will only see $12,000 as liabilities across the cards though you may actually owe only $700. As a result, the lender may view you as a high-risk borrower and reject your application.

Concerns about data privacy and accuracy

Given that under comprehensive credit reporting, a significant chunk of your data needs to be reported by credit providers to credit scoring agencies, the possibility of data misuse and identity theft cannot be ruled out.

Moreover, the increased volume of data with credit check organisations can also result in lesser accuracy. Data privacy advocates believe that under CCR, credit providers are less likely to verify the data before sharing compared to traditional credit reporting.

Critics also fear that mandatory comprehensive credit reporting in Australia may give rise to unregulated debt repair businesses. Such businesses may target those borrowers who are unable to get approved due to incorrect reporting bringing down their credit scores.

Lenders can market products more aggressively

With comprehensive credit reports, credit providers will have access to the precise credit data of each customer. The insights can be used to aggressively market new products launched and saddle a borrower with more debt.

Since CCR includes both positive and negative events, your credit score may dip or increase depending on your actions.

If you are in the habit of paying on time, it will be considered a positive event and boost your score. If you repeatedly miss making payments on time or make too many credit applications in a short time, it will be considered a negative event and bring your score down. In fact, a single payment default can get your score down by 20%, and three or more missed payments can bring it down by 40%.

CCR by different credit bureaus can also impact your credit score depending on how much data they consider. For instance, since Equifax comprehensive credit reporting holds the maximum data compared to other credit rating bodies, your Equifax score may not be at par with credit scores calculated by other agencies.

With comprehensive credit reporting, it is possible to keep a close eye on your credit score and take immediate steps to improve it should you notice any dips. Make sure to pay all your bills on time and get rid of credit cards you don’t need. In case you notice any inaccuracies in the credit report, contact your bank right away to remove them.

You can get your credit score and free credit report with ClearScore in just a few clicks, any time that you want. Take a look.