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Comprehensive credit reporting – what it means for borrowers.

This year, the Turnbull Government is forcing all of the big banks to join the ‘Comprehensive Reporting Regime’. Its impact will be both positive and negative.

 

Background

The Comprehensive Credit Reporting Scheme was introduced in 2014. Before the scheme was introduced, credit reports featured only information such as missed payments of more than 60 days and bankruptcies.

But since the changes were introduced, the information collected has been more comprehensive, including monthly payments on loans and credit cards, and raising red flags on any missed payments of more than 14 days.

Essentially, this provides a more detailed snapshot of personal credit history.

 

The good, the bad and the ugly.

As the changes come in to effect, consumer advocates have expressed concern that this amount of detailed negative reporting could have adverse consequences for consumers, (especially those with chequered credit histories) such as them finding it more difficult to obtain credit or be required to pay a higher rate of interest.

Another serious concern, is that a period of temporary financial hardship caused by sudden unemployment or other personal catastrophe could impact a person’s long-term credit rating.

The banks too, are concerned about the sharing of personal credit information across the financial industry and how to manage privacy.

 

First Home Buyers could benefit

However, the Treasurer, Scott Morrison, believes that more comprehensive data will assist the industry as a whole – enabling financial institutions to better understand, and service customers, which will, overall result in more competition amongst lenders.

The credit agencies who lobbied for changes say that the new system is fairer and will provide an incentive for us all to ensure that we strive for a good credit rating by not letting our financial commitments slip.

It’s possible that the scheme will be beneficial for First Home Buyers, for example, because while their credit histories may not be long, under the new system they will be assessed across a wider range of repayment responsibilities, potentially making it easier to get a loan.

People with good credit histories undoubtedly benefit – a reliable credit history is always looked upon favourably by lenders and this will enable these people more ability to ‘shop around’ for a lender who will offer competitive loans based on a good credit history.

But anyone with inconsistent income or a bad credit rating will still benefit from the stimulated competition as lenders look to carve out new niches in the market and seek to build their customer bases.

 

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