Black and White Finance update - July 2018
“I don’t know what CCR is..”
CCR (Comprehensive credit reporting) is here and it could stop you from getting your loan approved now or in the future, so you need to know what has just changed. The July 2018 Black & White Finance update looks at what you need to be aware of.
What is credit reporting and who uses my credit file?
If you are applying for a credit card, a home loan (mortgage) or a personal loan, your credit report, otherwise known as your credit file, could determine whether or not you’re approved or declined. Your credit file records any arrangement, like one for a mobile phone plan, where you owe an amount of money to a business and they agree to get paid sometime later down the track on a monthly schedule. It’s a report that businesses rely on, in addition to lots of other information, to assist in determining the likeliness of you paying back the debt owed – based on historical behaviour.
This credit report (your credit file), is created by independent agencies known as credit reporting bodies. They record how many times you applied for credit and which loans were opened, or which loans (credit) were not repaid on time or were defaulted on. Essentially, these agencies are recording the ‘bad’ credit behaviour. When you sign the privacy form at your bank before proceeding with that necessary loan, you are consenting to share your information with one of these agencies - it’s all in the fine print.
So, what is all the fuss about and what has changed?
These credit reports just got smarter. Credit reports will now provide a richer set of data making it easier for some people to get approved for a loan, or for others, harder. This additional data being shared about you now, is what this new Comprehensive Credit Reporting (CCR) is all about. By the end of September 2018, CCR requires the big four banks (ANZ, CBA, Westpac and NAB) to share at least 50% of their customers’ data with the credit reporting bodies who compile credit reports, with the remaining 50% within another twelve months.
"83% of Australians are unaware of the changes to Comprehensive Credit Reporting (CCR)", according to consumer education website, CreditSmart.
Previously, credit reports showed only your bad credit behaviour. Now, they will also show your positive behaviour. Your report will show your repayment history – a 24-month view on whether payments were made on time for personal loans, credit cards, car loans and home loans. It’s not legislation, or law, as of yet for all the banks but it’s probably only a matter of time before they will be implementing these changes.
Is this bad or good for me?
Well, it depends if you’ve been paying your debts on time. If you haven’t and let’s face it, no one is perfect, you need to have already reached an agreement with your bank and then that bank will not be including your data to be shared. The Australian government is working closely with the major banks to ensure we get this major reform right, without unfairly treating some customers.
In New Zealand, they just rolled this initiative out and caught everyone including customers, brokers and bank managers by surprise. Imagine that for a moment! At least we in Australia are approaching the change with structure, education and a human element.
In the future here in Australia, you may just need to pay a little more in terms of an interest rate for your loan because you could be deemed a higher risk if that’s what the data says about you. These changes and rate adjustments aren't going to happen anytime soon so for now, it will mean that the big four banks have more information about you.
Under this new system, you could actually be better off if you’ve had an unfortunate circumstance in the past, and missed a payment or two. Lenders will be able to see that they were once off and that everything else since then has been flawless so they would be more willing to lend to you.
What can I do about it – our key take away?
It’s important now, to be strategic about your credit file and understand it’s importance. Either make a plan so that your credit file is strong in the future, or for now make your repayments on time. Talk to your credit provider for some type of an arrangement if needed, or your broker about what else you can do to future proof yourself.
Going forward, our general advice is:
1. It is more important than ever now to pay your bills on time and set up automated direct debits for all or most of your reoccurring expenses
2. Check your credit report, even yearly or every two years, so you know what’s on it to put in place a strategy for anything necessary. According to CreditSmart, 60% of Australians have never seen their credit file and 64% didn’t even know they could get it themselves.
3. Any credit card or facility that is open that you don’t need, close it. Banks will not use your current balance when determining your maximum borrowing capacity. They will use the full limits of each facility, even if the balances are zero.
4. Ensure you approach your broker to determine the most suitable lender, understanding what is on your credit file before applying for finance.
We're keen to hear what you think about our monthly updates. We're keen also to receive your questions and if you want to know more about each banks requirements, or of some great terms, or rates on offer at the moment, please send a note to peter@blackandwhitefinance.com.au. Once again, thank you for reading.