Expert Opinion: In our inaugural ask-an-expert question, we asked about a serious change to credit reports that we know will affect a wide range of credit card applicants;

How will the planned changes to the Privacy Act commencing March 2014 affect someone applying for credit? Will people be labelled as bad credit who were not before? 

There are some changes coming in March 2014 that will impact everyone in Australia with a credit file – especially those looking to apply for a new credit card or loan in the next few years – so most adults aged 18-55. For a start, lenders will be able to see much more information than they can now when they request your credit file after you apply for a new card or loan.

Australia is moving towards a ‘positive’ credit reporting environment, where a good history with repayments and signs that you are reducing your overall debt will be rewarded and viewed positively by lenders. At the moment, lenders can see ‘negative’ information on a credit file. This includes:

• Accounts that have been applied for (but not, for example, credit limits on credit card applications all of the time)
• Defaults – where a payment is more than 60 days late
• Default judgments or bankruptcy where a person has been the pursued through the courts in a debt collection action

The system will be similar to what exists in the United States, and the third credit reporting agency to enter Australia, Experian, may also have an impact. In general Australia’s credit reporting agencies have stated that they believe it could take around 12 months before the same level of data is reported on Australian borrowers as what the US FICO system provides for borrowers there.

Members of our expert panel agreed that those who want to apply for new credit in 2014 will be most affected by the changes, rather than those who already own their own home etc, though applications for refinancing or adding to your existing debt will not be immune to credit checks.

If you are wondering whether you might be considered ‘bad credit’ from next year, then pay close attention to the advice given below and start doing your research into ways to improve your credit file and keep your score high enough to get approved for the amount you want when it comes time to borrow. Our experts have highlighted areas to watch, and what lenders will be interested in so you know where to concentrate your efforts.

 Graham Doessel

Non-Legal Director,  MyCRA Lawyers

Someone applying for credit after March next year will have more information about them shown to lenders who request a copy of their credit report.

There will be five new data sets available to lenders,

1. repayment history information;
2. the date on which a credit account was opened;
3. the date on which a credit account was closed;
4. the type of credit account opened;
5. and the current limit of each open credit account.

Quite possibly there will be more people considered to have ‘bad credit’ after March 2014, once new laws are implemented. The most significant credit rating damage could come from repayment history information.

Australian consumers are currently under the microscope with their repayments. Since December 2012, individuals who are more than 5 days late in repaying licenced credit (eg credit cards and loans) have a late payment notation marked against their name. This information will be available to lenders on the individual’s credit report from March 2014. This is in addition to the current default information which is shown after repayments fall more than 60 days in arrears.

While many have argued that only a pattern of late payment notations would hinder access to credit, I have maintained that even one or two late payment notations could at least affect the interest rate an individual is offered.

This change could trip up many Australians and mean people are unnecessarily banned from credit due to simple billing mistakes, lost paperwork and other payment mishaps.

A history of applying for the ‘wrong’ type of credit could also be detrimental and possibly pull down any credit score calculated on the individual.

 Nick Vamvakas

Chief Risk Officer, ME Bank

With the introduction of the privacy act more information will be recorded about a person’s credit history. This includes positive credit behaviours, which were never previously recorded and some negative behaviours that weren’t previously recorded such as late credit card repayments (previously only credit card defaults were recorded). Overall this new, more complete, approach gives credit providers a better picture of a person’s credit history and has significant benefits for people applying for credit. Their credit history will be more accurate and provide a truer and fairer reflection of their ability to manage the credit for which they’ve applied.

 Dominique Bergel-Grant

Founder, Leapfrog Financial

Without doubt there are changes around the corner that will significantly impact all those applying for credit after March 2014.  The changes to the Privacy Act will enable prospective lenders to know more about you than you probably even do.  From details about account repayment history, types of accounts and detailed credit information about the account status.

This is far more detail than what they currently have access to and will ensure nothing unwanted slips through.  A big difference is the repayment history of up to 24 months being provided is a significant increase to the typical 3-6 months most lenders currently require.  So being well behaved with your credit will be even more important than ever otherwise you will find yourself needing to explain any inconsistencies which could lead to a loan application being declined.

 Heidi Armstrong

CEO, State Custodians

The changes to Australia’s credit reporting system will have a greater impact on those applying for credit. Not only will credit providers be able to see any repayment defaults, bankruptcies or past credit applications, but they will also have access to the past 24 months of your credit repayment history going back as far as December 2012.

This can be either a good or bad thing, depending on your financial situation. If you are diligent with your repayments and always pay bills on time, it could help improve your chances of success when applying for credit. However, if you have been late or missed repayments in the past 24 months, lenders will be able to see this and may factor this into their decision whether to approve or decline your credit application. Therefore, it is more important than ever to make an effort to keep your repayment history clean.

 Steve Brown

Director, Consumer Risk Solutions at Dun and Bradstreet

The changes to Australia’s credit reporting system will improve the detail and accuracy of the information used to assess applications.

For those applicants with a history of sound financial management, the additional information will provide a more detailed view of their creditworthiness. The addition of repayment history data will also allow individual’s with a previous credit slip-up to demonstrate they have rectified their credit position by making regular and on-time repayments.

Equally, with provisions to record payments made five-or-more days late, changes to Australia’s credit reporting system mean that those people who regularly make late repayments will become more visible to credit provider.

If you would like to know more about upcoming Privacy Law changes, visit our blog www.mycra.com.au/blog.

Image: Stuart Miles/ www.FreeDigitalPhotos.net