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.

Comprehensive credit reporting has its fair share of advantages and shortcomings. Here’s a breakdown of what’s good and what’s not.

It provides additional information to the credit providers

Before CCR was introduced, banks and financial institutions holding a valid Australian credit license were required to extend credit by only evaluating a limited amount of information, such as the details of payment defaults made by a prospective borrower. With CCR, credit providers have additional information, such as the type of credit a borrower has to make a more reasoned decision about whether they should sanction a loan.

It takes into account good credit behaviour

CCR includes both positive and negative payment history. If you are a borrower who always repays your debts on time, the system will record such payments, and you will be able to convince a lender that you have good credit behaviour. In other words, negative credit reporting meant that you would be left with a lower credit score for a single default even though you may be repaying other debts on time. But with CCR, being a good borrower overall can impact your score positively.

You get access to better offers from credit providers

As credit providers have access to a comprehensive credit profile, the chances are that they will offer you better loans with competitive interest rates or higher sanctions once they are convinced that you are a creditworthy borrower.

You can build creditworthiness quickly

If you are a new borrower on the block who’s just starting to build a credit profile, CCR can help you build your credit history faster. As all your payment information is shared with credit bureaus and updated every month, your credit scores can improve in a short span of time. This is especially helpful if you want to fulfil a big-ticket difficulty for young borrowers to obtain credit with little credit history.

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’d other be considered ineligible for one due to bad credit history.

It helps lenders identify incipient stress

Additional data available to credit providers can make it easier for them to identify credit stress in any account at an earlier stage. They can provide the necessary support to the borrower or work out a debt recovery plan, resulting in fewer bankruptcies.

More data can mean more errors

Consumer rights groups fear that adding more data to credit reports can increase the chances of more errors. This may give rise to illegal operators providing standalone services to fix the errors.

Lenders may take advantage of borrowers who have a negative credit history

Several consumer groups also believe that while consumers with a good credit history will get better interest rates, those who have defaulted in the past may be considered high-risk and offered increased rates.

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.

Any outstanding tax payments can also get flagged

On account of CCR, Australian Taxation Office (ATO) has the power to disclose to credit reporting bodies the details of tax debt owed by self-employed individuals and businesses to ATO. This can have far-reaching consequences as lenders may withdraw lines of credit or suppliers' credit, which are crucial for running the operations of a business.

Credit reports are prepared by credit rating agencies. They contain your entire credit history, which includes information such as how many times you applied for a credit product, what your repayment track record is like, what is your outstanding loan balance, and whether there are any defaults linked to any credit account in your name.

Banks and financial institutions report the information for your credit report to credit reporting agencies. Credit rating agencies also condense the reported data and use a mathematical model to assign you a credit score. The score indicates your creditworthiness as a borrower.

Lenders use it to assess whether you are likely to commit loan defaults. Your credit score determines how much interest you will be charged. The higher your credit score, the better are your chances of securing a lucrative loan offer. Higher credit scores also give you more bargaining power to negotiate favourable lending terms.

While conducting credit inquiries and pulling out your score is essential for lenders, it is not the sole criterion for deciding on your loan application. They also consider other information furnished during the application process to determine how much to lend and on what terms.

Comprehensive credit reporting (CCR) in Australia was introduced in March 2014. It refers to a credit reporting system where credit providers furnish both positive and negative data about borrowers. It was introduced to help lenders make a more informed assessment of potential borrowers. Prior to CCR, credit reports contained incomplete credit information about a borrower. For example, though a lender could see when credit iniquities by another lender were initiated, they did not know whether the application was approved.

The initial response to CCR reporting was not very encouraging, as compliance with CCR was voluntary. This resulted in the Government imposing deadlines for major banks to comply with the system. After that, the Australian government introduced mandatory comprehensive credit reporting legislation. A Bill titled National Consumer Credit Protection Amendment (Mandatory Credit Reporting and Other Measures) Bill 2019 was introduced to the Parliament. Both houses of the Australian Parliament passed the Bill in February 2021.

As per the law, it is now mandatory for every lending body in Australia to follow CCR as part of their responsible lending obligations.

A comprehensive credit report makes it easier for lenders to make an informed evaluation of a borrower.

Instead of only reporting the date of various loan applications and inquiries or whether your loan is in default, comprehensive credit reporting captures additional information in your Experian credit report. This includes :

• The current limit on your credit accounts;
• When the loan accounts were opened or closed;
• Your repayment history, including the payments made on time

Additional information makes it easier for borrowers with good credit histories to bag the offers they deserve. Lenders also have more information at their fingertips that helps them to make a more objective and accurate assessment of a borrower’s risk profile.

Moreover, the inclusion of repayment history information in the Experian credit report can positively impact a borrower's overall credit score and help them move from a higher risk to a lower or medium risk category.

As one of the leading credit bureaus in Australia, Equifax is also legally bound to capture data through a comprehensive credit reporting system. In fact, Equifax was the first agency in Australia to develop a credit score rating model incorporating CCR data.

A comprehensive Equifax credit report not only includes negative credit information, such as details about payment defaults and serious credit infringements, but it also captures positive information. Positive data reported includes:

• the date of opening and closing various accounts;
• credit limits of each account;
• types of credit accounts;
• repayment history of the last 24 months

Equifax credit report prepared based on CCR data empowers consumers -- those with higher credit scores can easily negotiate better lending terms. It also helps borrowers to identify the key factors that may increase or decrease their credit score and ensure that the information used by lenders is complete and accurate.

It also helps lenders to decide quickly and more accurately. A shorter application process allows lenders to deliver a superior customer experience.

Comprehensive credit reporting is restricted to the borrower alone.

Credit reporting under CCR has information about the borrower’s current accounts, repayment made on time and repayments missed, and what accounts they may have closed or opened during a specified time period.

Since the credit information of an individual in their capacity as a guarantor is not reported as part of CCR reporting, guarantors are not impacted.

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 request a credit score checking provider to provide you with a free copy of your credit report once a year. With ClearScore, you can check credit score and credit report any time you want.