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A new survey has revealed three in five Australians are unaware their credit score may have already changed as part of new credit reporting regulations.
Credit bureaus will be supplied with at least 50% of the major banks’ customer credit data by 28 September 2018 and 100% by September 2019.
Comprehensive credit reporting (CCR) means lenders will be able to see what type of credit accounts people have, their credit limit and whether they have been making repayments on time.
The changes mean the way the banks view potential borrowers’ eligibility for a loan. With the extra information, those who were not suitable in the past may now qualify for credit and vice versa.
As more banks, including non-majors, send over their information ahead of 28 September, borrowers’ credit scores are already changing.
Without understanding the changes borrowers could be risking their loan application or ability to negotiate a better interest rate.
According to credit reporting bureau Experian, many customers could be experiencing fluctuating credit scores as the changes roll in.
Poli Konstantinidis, Experian Australia/NZ executive general manager, credit services and decision analytics, said while fluctuating credit scores should not be a cause for concern, it is important for borrowers to understand their financial situation.
He said, “Confusion and lack of awareness about credit score changes mean borrowers with a strong credit history could be missing out on their chance to access lower rates of interest.
“Most concerningly, our research shows the people most likely to see the impact of changes to their credit score sooner rather than later are also the ones most in the dark.”
Experian’s survey found 65% of big four customers and 53% of those with multiple accounts across multiple credit providers didn’t know more of their data was being shared, compared to 52% of non-big four customers. Similarly, non-big four customers were 10% more likely to have checked their credit score.
Konstantinidis added, “From our experience in the 18 other countries where we operate credit bureaus, positive data sharing is a much fairer system and provides consumers with better credit opportunities.
“It doesn’t just help those with strong credit scores, it also means those without a long credit history, young first home buyers for example, can build one quicker than before.
“Through greater visibility of individual circumstances, credit providers are better positioned to lend more responsibly, making informed case-by-case decisions with a holistic view of the customer’s repayment history at hand.”
Konstantinidis said overseas markets that transitioned to CCR ahead of Australia have seen significant improvements to the lending environments for consumers.
In the US, CCR enabled an uplift of up to 40% in access to credit among younger and underserved borrowers while credit card lending in Hong Kong increased by almost 10% in the two years following their introduction of CCR.
The nationwide survey of more than 1,000 Australians revealed in the Know the Score research report, found misconceptions about what data impacts credit scores remain rife.
Konstantinidis said, “It is apparent that financial literacy is the key to a seamless transition to Comprehensive Credit Reporting.
“I definitely see mortgage brokers playing a key role with regards to education, considering their position within the lending process and therefore ability to firstly develop an in-depth understanding of the changes, and then impart the knowledge to their clients which will ultimately empower Aussies to make more informed decisions when applying for home loans.”
Mike Laing, Executive Chair of ARCA, agreed that it is very important for consumers to understand the changes to credit reporting and how to optimise their credit health.
He said, “Going forward, consumers’ credit reports will become a personal asset which will hold them in good stead for when they need to take out a loan or mortgage.
“I am delighted that around thirty organisations, including Experian, have made significant financial contributions to support the CreditSmart consumer education campaign and are also developing educational materials of their own for consumers. I encourage consumers to visit the CreditSmart.org.au website if they have further questions, including on how to optimise their credit health, or get errors on their credit report fixed for free.”
