Credit plays a huge role in the lives of many Australians. Almost 80% of us currently have some form of credit product. The most common types of credit include credit cards, home loans, vehicle finance, Buy Now Pay Later services, and personal loans.
When you apply for credit or a loan, most lenders usually look at your credit report to understand your debt commitments and gain insight into your credit health.
How do credit reports work?
When you apply for a loan or credit, credit providers might check your credit report. Created by a credit reporting body, this document records your credit history – from how many times you have applied for credit and which loans were opened, to your history of making repayments, any defaults and how much debt you have available.
Credit reporting bodies may condense your credit report into a credit score. Your credit score assesses your creditworthiness at a particular moment to help credit providers decide who to lend to and how much to charge for interest.
Credit providers will not use your credit report or credit score in isolation, they will also assess any information you provide during the application process and other details to determine if they will lend to you, how much they will lend and on what terms.
What is comprehensive credit reporting?
Comprehensive credit reporting was introduced in Australia to provide a more complete and clearer picture of your credit history. These changes may make it easier – or for some people, harder – to get credit or a loan.
Previously, your credit report mainly showed your ‘bad’ credit behaviour such as defaults and other credit infringements and bankruptcies. Now, your comprehensive credit report also includes positive information like your repayment history. So if your credit report or credit history shows that you manage your debt well, this is viewable to credit providers.
This is good news…
If you have been paying off your credit card and loans on time, this positive history will count towards your credit worthiness - as you have been demonstrating your ability to responsibly manage debts. Credit providers can check if the credit you applied for is right for you. Better still, they may offer a loan with an interest rate and repayment schedule that is tailored to your unique circumstances.
…but there could be a downside for some
With a clearer picture of your financial health, credit providers are in a better position to see if you should be given credit. A poor credit history will be more obvious and you may not be approved for credit.
But all is not lost. Under the new system, if you pay off your overdue payments and continue to pay your debts on time, credit providers will be able to see that you are now managing your loans (however, defaults will continue to stay on your credit report for five years).
Making repayments on time
Late or missed payments will show up in your credit report, so it is very important to make your repayments on time, and if you are finding it hard to make repayments or if you have lost your source of income, contact your credit provider right away. They may be able to help you restructure your repayment obligations.
Financial counselling services and hardship assistance are also available to help you get back on top of your financial situation. Financial counsellors work in community organisations and provide advice about credit and debt issues. Financial counselling is free, independent and confidential.
Comprehensive Credit Reporting Participants