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 in a credit report?
Your credit report can include information that is needed to identify you: name (including other names that you use); birth date; current and two previous addresses; current or last known employer’s name; driver’s licence number (if you have one).
Your credit report may also have information about your credit history – that is, how you’ve dealt with other debts. This is very important information as it tells the new credit provider how you’ve treated those debts, which gives an indication about how you’re likely to treat the new debt.
What’s included in your credit report can be a bit technical. To help you understand, we’ve set out an explanation below.
Repayment history information
This shows – on a month by month basis – whether you’ve made your loan payments on time. Other lenders will see a 24-month history of your payments (after 24 months, the information falls off your credit report).
If you’ve been up to date with your repayments and then miss one, a lender will only report that you missed the payment if you’re at least 14 days late. This means that if you forget to make the payment but catch up within a couple of days, your credit report will show that you’ve made the payment on time.
If you make your existing payments on time, when you apply for a new loan, the new lender will see that and it will help show that you’re likely to repay the new loan.
If you’ve fallen behind by a few payments, or you miss payments on a number of loans, this may make the new lender worried that you won’t able to repay the new loan. But this can be improved by making sure you get back on track with your payments. Each month that you are able to make your payments on time will give a new lender more confidence that you’re going to be able to repay the new loan.
Only banks, credit unions and other types of finance companies are able to report or access repayment history information. Phone, gas and electricity providers are not able to report or access this information. This means that your credit report will not show whether or not you’ve paid your phone, gas or electricity bill on a month-by-month basis (but those businesses can report if you don’t pay for at least 60 days; see Default Information)
What will repayment history information look like?
Whether you’ve made your payments on time is represented by a number. A ‘0’ means that you made the payment on time (or, up to 14 days after it was due). A ‘1’ means that in that month you were one payment behind. A ‘2’ means that you were two payments behind and so on.
You’ll see a history of up to 24 months (depending on how long your account has been opened and when the lender started to report your payments). If your credit report shows 24 ‘0s’ in a row, this means that you haven’t missed a payment over the last two years.
Consumer credit liability information
This refers to the basic information about the loans you’ve taken out and the things you’ve bought on credit. It includes information about the type of debt (e.g. a home loan or electricity account), the credit limit of the account (but not the actual balance of what you owe) and what type of payments you’re making (e.g. “principle and interest” or “interest only” payments).
When you apply for a new loan or to buy something on credit, credit providers can use this information to make sure they know how much debt you already have. This helps them to understand whether you can afford the new debt.
This information will stay on your credit report while the loan or account is open and for 2 years after it’s closed.
This shows the types of loans you’ve applied for, and the types of things you’ve tried to buy on credit, over the last 5 years. These will be shown whether or not you were actually approved for the loan, or whether you opened the loan once approved. For example, if you shop around for a credit card and make applications to three different banks, then your report will show three applications.
This can be important information for credit providers when you apply for a loan or credit. If there are a lot of applications on your report, the credit provider may worry that you are trying to get too many loans or buy too many things on credit (particularly if the applications are very recent).
This is a record that you haven’t met your repayments for quite a while. In fact, you have to have missed your payments by at least 60 days and the credit provider has to have made efforts to get the payments from you.
Having a default on your credit report is serious and will make it much harder for you to get a loan or buy things on credit for 5 years. After 5 years, the default will fall off your credit report.
If you have had a default listed, you can still improve your credit report a little bit by making sure the debt is paid or settled. If that happens, the credit provider has to update your credit report to say that the debt is no longer owed by you. Also, if you have other loans and are able to continue paying your repayments on time for those loans, that good repayment history information may help to reduce the impact of the default on your credit report and credit score.
However, it’s important to know that once a default has been correctly recorded on your credit report, it won’t come off for 5 years, even if you pay the debt owed.
There are rules that credit providers have to follow before listing a default (including sending you at least two written notifications about the debt and not listing any overdue payments less than $150 or that are statute barred).
If you think that a default has been listed on your credit report incorrectly, or if you think you don’t even owe the money being claimed, you can dispute the information with the credit reporting bodies.
Court proceedings information (i.e. court judgments)
Your credit report will show if a court has made a judgment against you in relation to any unpaid loans or credit to buy things. This will stay on your credit report for 5 years from the date the judgment was given.
This could happen if, for example, you don’t pay your credit card for a long time and the lender thinks the only way to get their money back is to take you to court. Another example is if you don’t pay your home loan and the lender goes to court to take possession of the house that was given as security.
Personal insolvency information (e.g. bankruptcy)
Your credit report will include information about your personal insolvency, including if you have gone bankrupt. However, it also includes other insolvency information such as debt agreements or personal insolvency agreements. These will stay on your credit report for at least 5 years.
Serious credit infringement
As suggested by the name, this type of information is very serious. It means that the credit provider thinks that you either obtained the credit on a fraudulent basis or are now trying to avoid paying back the money owed (this doesn’t apply if you want to pay back the debt but just don’t have the money).
A serious credit infringement will stay on your credit report for 7 years and, during that time, will make it very hard to get a loan or buy things on credit.
You can make sure a serious credit infringement isn’t recorded on your credit report by always letting your credit providers know your up-to-date contact information. If you’re having difficulty paying your loan, make sure you keep in regular contact with your credit providers.
Publicly available information
Your credit report may contain information from certain other sources – such as government authorities and the courts – if that information is ‘publicly available’ and relates to your credit worthiness.
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.