In our busy lives it can be easy to overlook bill payments but keeping a firm rein on money matters just became more important than ever.
It may not have made headlines, but 1 July 2018 heralded the arrival of Australia’s new credit reporting regime – and it could have a big impact on your ability to secure a loan, a credit card – or even have the power connected.
Let’s take a step back for a moment to look at some background details.
Credit reports – a lender’s view on how you handle debt
Whenever you apply for credit, and this can include opening a new mobile phone or gas/electricity account, the provider is likely to have a look through your credit report – it’s like a record of how well you have handled debt in the past.
Credit reports are put together by credit reporting bodies (CRB) such as Experian, illion and Equifax. They then use this information to calculate your credit score – the higher the score, the less risk you represent to a lender.
A focus on negative reporting
Before 1 July 2018, the old system of credit reporting focused on negative information. Unpaid bills, overdue accounts and loan defaults all had a big impact on your credit score, and these details could stay on your credit history for years. Any black marks against your name made it difficult to secure competitively priced finance.
In fact, the impact of a poor credit score was (and still is) wide-ranging because many of life’s big moments, from buying a home, starting a business, or heading off on a holiday, can hinge on our ability to access credit.
A shift to positive behaviour
The system has now changed, and since 1 July 2018 a new “comprehensive” credit reporting (CCR) regime has been in place. It calls for our big financial institutions to provide details of the type of credit we hold plus information on positive and negative events, to compile credit reports.
“Positive” events include paying credit cards and loan repayments on time. As these reflect favourably on your credit report, positive behaviour can raise your credit score, hopefully making it easier to secure credit. Conversely, consistently running late with repayments can make it harder to get another credit facility.
Overall, the new system of positive reporting gives lenders a more rounded picture of your credit history and the way you manage debt.
The table below highlights the difference between the old credit reporting system and the new one now in place.
What can you do?
Your credit report is information about you, so it’s important to check your credit report at least annually to be sure the information is correct – more so if you’re planning to apply for a home loan any time soon. You’re entitled to one free copy from each CRB every year.
Even if you don’t have immediate plans to apply for a loan, it’s worth keeping your credit report in good shape. A simple way to do this is by paying bills and debt repayments on time.
If you’ve missed repayments in the past, rest assured it won’t stay on your record forever. Your repayment history is only maintained on your credit report for 24 months. That said, each time you make the lender’s minimum repayment it has a positive impact on your credit report, so by keeping up with repayments you have an opportunity to turn around a less-than-glowing credit report.
Speak with your local FinChoice financial adviser for more information on the new credit reporting system, or for personalised tips on how to keep your credit report looking good.