Credit enquiry scandal shows up faults with credit scoring
20 March 2013
Millions of Australians could potentially be unfairly rated during the credit reporting process with little to no education on how their score is arrived at, nor any chance to redeem a bad credit score, a consumer advocate for accurate credit reporting reveals.
CEO of MyCRA Credit Rating Repair says a recent scandal over consumers being blacklisted from taking out credit because of too many credit applications – often which they have little control over, reveals a gaping hole where legislation is yet to meet current practice.
“Before we allow consumers to get a ‘scoring’ based on their assessed potential for risk then we need to make sure the information we are using to calculate that score is both fair and accurate, and in some instances under the current system it is neither,” Mr Doessel says.
These comments come after it was revealed on Channel 7’s Today Tonight on Monday that 5-6 million Australians are in the ‘credit dog-house’ simply because they have applied for finance.[i]
The report revealed that excess credit enquiries are having a major effect on borrowers, and most don’t even realise they have credit enquiries on their credit report until it’s too late.
Mr Doessel says credit enquiries are not always due to being refused an official credit application.
“Sometimes banks can perform enquiries periodically on lines of credit, and another big issue is system generated enquiries through consumers investigating different credit products online,” he says.
He says whilst in most cases borrowers have technically given permission to perform the enquiry, there is little education on the ramifications of making one.
“Information on credit applications made stays on a person’s credit file for 5 years. But how many credit enquiries is too many, and over what period of time?” he says.
The Today Tonight report absolves credit reporting agencies such as Veda Advantage, saying they simply hold the records.
“It’s the current legislation that only allows negative information to appear on our credit records and loan applications are listed as negative,” Veda Advantage’s Belinda Diprose advises.
But Mr Doessel says scoring systems such as the Veda Credit Score is far from just reporting.
“Issuing a credit score goes further, calculating risk based on certain types of behaviours around credit and allocating a score accordingly which is used by lenders to assess whether the potential borrower is a good or bad credit risk. That’s more than reporting, that’s opinion, that’s making predictions,” he says.
Mr Doessel argues that credit scoring should not have been introduced prior to implementation of the Privacy Amendment (Enhancing Privacy Protection) Act 2012 in March 2014, which allows for more comprehensive data on Australian credit files.[ii]
“This new form of credit assessment should not have been introduced until comprehensive credit data was available to lenders, not just negative data. To be fair to consumers, an educated ‘opinion’ on credit-worthiness needs to be formed based on many more factors than what is currently available on Australian credit reports,” he says.
In the meantime, he is calling for education to give consumers clear guidelines as to what constitutes a low credit score.
“Consumers need to know how this score is calculated, what sort of information will be taken into consideration when they are given a credit score, and what they can do to prevent a score being so low they are refused credit, both in the current market and when comprehensive credit reporting comes into effect next year,” Mr Doessel says.
Credit active Australians can check their credit file at no cost every 12 months to make sure they are not blacklisted unnecessarily. Go to http://bit.ly/My-Free-Credit-File for more information. If a credit enquiry was not authorised or was incorrectly listed, then they may have a case for requesting its removal.
Lisa Brewster – Media Relations email@example.com
MyCRA Credit Repair 246 Stafford Rd, STAFFORD Qld
MyCRA is Australia’s number one in credit rating repairs. We permanently remove defaults from credit files. CEO of MyCRA Graham Doessel is a frequent consumer spokesperson for credit reporting issues and is a founding member of the Credit Repair Industry Association of Australasia.
Image: Ambro/ www.FreeDigitalPhotos.net