Credit reporting laws
The use of credit reporting by credit providers and other businesses is subject to the Privacy Act. This sets out strict rules about who can use credit reporting, the types of information that can be on a credit report and how that information can be used.
In addition, the Privacy (Credit Reporting) Code sets out more detail on the rules that apply to credit reporting.
Under the Privacy Act, 'credit' doesn’t just include the normal types of loans that you would get from a bank, credit union or finance company. It also includes arrangements where a business gives goods or services to you without being paid upfront and you have at least 7 days to pay. This includes phone, gas, or electricity arrangements where the business supplies the services before being paid.
Comprehensive Credit Reporting – Positive data now increasingly available
The Federal Government has set a 2018 deadline to encourage credit providers to start sharing more positive data, so it’s important for all Australians to understand how their financial history may impact their next credit card, loan or mortgage application.
Also known as Comprehensive Credit Reporting, positive credit reporting is in line with many other developed nations like the UK and the USA where people with strong credit histories can use this information to seek out better credit offers
Previously, a credit report only showed negative information such as defaults and it did not show any information about how diligently a person had been paying off their debt. Now, credit providers will see a much more comprehensive picture of a person’s repayment history.
The new positive information means a more balanced system for a person who has a good credit history (as it highlights good behaviour), as well as those who previously had trouble meeting their financial commitments but are now showing good bill paying behaviour – as it may enable them to access quality credit where they may not have been able to previously.
What’s the difference between "consumer credit" versus "commercial credit"?
The Privacy Act makes a distinction between ‘consumer credit’ and ‘commercial credit’.
Consumer credit includes the normal things like home loans, credit cards and personal loans when they’re used by individuals for ‘personal’ purposes (i.e. non-business purposes). It also includes things that are bought on credit for personal purposes, like your non-work mobile phone and your home gas and electricity account.
Commercial credit includes loans that are used for business purposes. This includes where the loan is taken out by a company and an individual provides a ‘guarantee’. It also includes things that are bought on credit by a business.
The CreditSmart website talks about the rules that apply to credit reporting for ‘consumer credit’ only. If you’ve ever applied for commercial credit, you will probably have another credit report that deals with those types of loans. When you apply for commercial credit, the credit provider is able to get your permission to check your ‘consumer’ credit report. This will be recorded on your ‘consumer’ credit report (which will otherwise not list anything about your commercial credit activities).
What types of businesses use credit reporting?
The main types of business that use credit reporting are
- Banks, credit unions and other types of finance companies
- Phone, gas and electricity providers
Many other businesses also provide ‘credit’ and can potentially access credit reporting. Some examples include:
- Car rental companies – the ‘credit’ can include rental payments that aren’t paid until the end.
- Retail stores if they let you buy things on credit
- Companies that hire out goods (e.g. household goods, TVs etc.)
However, in order to access your credit report the business must be a member of an approved ‘external dispute resolution’ scheme. If they’re not a member, they should not be accessing your credit report.
In addition, there are some companies that are involved in the process of providing credit but are not the actual credit provider. These businesses can also use credit reporting and include:
- Lender’s mortgage insurance providers
- Agents of the credit provider who help process the application or manage the credit
How can credit providers use credit reporting?
Your credit report will be used by a lender when you apply for a loan, or by a business when you ask to buy something on credit. This includes when you apply for a new loan and when you apply to ‘top-up’ an existing loan or ask for a higher credit limit on your credit card.
However, there are some other times that your credit report can be used, including:
- To help collect payments that are overdue. If you are behind on your payments the credit provider can use your credit report to help them get the payments from you. This could include, for example, using the credit report to find out your new address.
- To help you avoid defaulting. A lender, like a bank, credit union or finance company can get a copy of your credit report if they think that there are signs that you are struggling. They must use that credit report to try to help you.
- To help the credit provider manage their business. Credit providers are subject to really tough restrictions on how they use your credit report. However, under the law they can use your credit report for their ‘internal management purposes’. This just allows them to use your credit report to make sure they are running their business properly. For example, they might use information from your credit report to assess whether their processes to assess credit applications are working properly.
To help protect your privacy, your credit report will record each time someone looks at your report. Don’t worry – only you will see this information and it is not shown to credit providers when you apply for a loan, and it won’t affect your credit score.
Limits on using credit reports for advertising purposes
Credit providers and credit reporting bodies generally can’t use information from your credit report to advertise things to you.
The only exception is that your credit report can be used to ‘pre-screen’ advertising offers to you.
‘Pre-screening’ involves the credit provider giving a list of names to a credit reporting body, which then arranges for an advertising offer to be sent only to people with a good enough credit report. This means that when those people apply for the loan they’re much more likely to be approved (which avoids wasting the time of people who are unlikely to be approved). During this process, the credit reporting body doesn’t give any of your information to the credit provider.
If you don’t want your credit report to be used for pre-screening, you can tell the credit reporting body not to use it in this way.