Changes to credit score calculations
Lenders now have access to more information than ever about your clients’ credit history. In this article, we’ll break down what Comprehensive Credit Reporting is and the impact it might have.
What is Comprehensive Credit Reporting (CCR)?
Credit bureaus compile credit reports based on feedback about credit behaviour from banks and other credit providers. Credit reports contain a credit rating between zero and 1200 as a measure of creditworthiness.
CCR is the information that lenders can access via credit rating agencies about your clients’ credit history. The introduction of CCR changed the type of consumer credit information that can be collected and reported. Previously, Australia only had a negative credit reporting system but now this includes positive information.
This includes whether your clients’ have a mortgage, mortgage repayment history going back two years, credit card limits and repayment history, and repayment history on car or personal loans.
It is now mandatory for the big four banks to use CCR more fully and apply it when making credit assessments. It is still optional for smaller banks and other lenders.
Who does this impact?
In short, this impacts all eligible consumer credit accounts. These are accounts which provide or can provide consumer credit such as home loans, personal loans, car loans, credit cards and overdrafts.
In the past month around four million mortgage accounts were fed in, that’s about 80 per cent of all mortgages in Australia. 15 million credit cards, or 60 per cent of all cards, have been reported.
Following the initial bulk supply of information, the big four banks must continue to keep the information up to date.
How does it impact your clients?
- Those with good overall credit histories could eventually get a lower interest rate and those without may be charged a premium rate or find it more difficult to obtain credit.
- It should increase competition leading to better deals on mortgages, personal and business loans in the long run.
- The inclusion of ‘positive’ information can balance the ‘negative’ information previously reported.
- It will provide greater transparency on a borrower’s credit history and their ability to pay a loan.
Therefore, if your customers have a good credit history – they’re paying down their mortgage, haven’t missed a payment on their car loan and their credit cards are under control – you might be able to demand a better deal on interest rates, or shop around armed with their data.
What can your clients do to ensure a strong credit report?
- Regularly review their credit report
- Report any errors
- Pay bills and make loan repayments on time
- Pay their credit card off in full each month
- Lower credit card limits
- Consider consolidating debt
- Limit credit enquiries, as frequent applications can look bad on your credit report
- Remove your name from utility bills if you move
- Be cautious about identity theft.
How to download a credit report?
Request a copy from a credit reporting body like Equifax, illion or Experian.