First home buyers are seeing one of the biggest boosts to their perceived credit worthiness thanks to increased data sharing amongst lenders, despite also having some of the worst credit card repayment histories of all demographics, new research from Australian credit bureau Experian has revealed.
The analysis of 9.2 million individual credit card holders and 14 million open credit cards across multiple lenders in Experian’s credit bureau, highlights how Aussies are affected by comprehensive credit reporting (CCR), which the big four banks and other lenders such as Citi and HSBC are now using to decide whether or not to approve a loan application.
The research shows 5.8% of first home buyers and young families in new homes across Australia’s fastest growing suburbs have missed a credit card repayment in the last 3 months, more than twice as likely to fall behind in payments as the most affluent group of borrowers in Australia (2.8%). This demographic largely falls in the 25-44 age range with children below 14 years old with an average weekly household income between $1500 - $2499.
“Potential home buyers need to be aware that their credit card usage, including the number of cards they own, can now have an impact on their future home loan applications,” said Poli Konstantinidis, Executive General Manager, Credit Services and Decision Analytics A/NZ at Experian.
“Lenders are now able to see the number and type of credit accounts people have and whether they have been paying loans back on time, which helps them better evaluate who to provide credit to and lend more responsibly.”
“My advice to potential home owners and anyone about to apply for a line of credit is to keep checking your credit report regularly to either take advantage of any increases in your score or make sure you’re not applying for a home loan with a poor credit score.”
Despite being the potentially riskiest group of borrowers (or just the most forgetful), the majority of first home buyers and young families are seeing a boost to their credit worthiness rating, with an average four per cent jump in their credit scores now that lenders are sharing positive credit data. First-time home buyer Jennifer Lele says, “I’m of a generation where being able to buy a first home isn’t a guarantee, especially with cost of living steadily going up. With the boost in credit scores, I’m hopeful it will translate into more favourable home loan rates. It also empowers those in my position to proactively take steps to improve our credit scores, if required.”
The research additionally found those in the 18 to 25-year-old bracket will see the biggest increase in credit scores followed by 25-35-year-olds. The research shows the new positive data will help younger Australians, or those without a long credit history, build one more easily and quicker than before.
Experian’s research also identified a correlation between the number of credit cards held by consumers and their credit scores, with scores tending to decrease as the number of cards increased. It additionally revealed an individual with two credit cards is 54% more likely to miss a payment than those who only have one - a steady decline as the number of credit cards increase.
“Your financial history counts more than ever before, but the majority of consumers are unaware of this”, Konstantinidis said.
“Our recent consumer research, Know The Score, revealed three in five Aussies don’t know credit providers are looking deeper into their financial history. Experian urges consumers to pay credit cards on time and check their credit report before their next credit application.”
The research was based on Experian’s credit bureau data of 14 million open credit cards and a population of 9.2 million individual open credit card holders. The comprehensive score component is based on 2.5 million individuals with open credit card information and looks at three months’ worth of credit card information.