Wednesday 12 March marks the introduction of a new credit reporting system which will collect far more information about Australians’ credit history. The extra information is supposed to help credit providers make a better assessment of someone’s ability to afford credit and help them lend more responsibly, but Consumer Action Law Centre fears credit providers will also use the new data to improve their bottom line.
‘Currently you won’t end up with a ‘black mark’ on your credit report unless you are over 60 days late in missing a payment. But under the new system, the Repayment History Information* on your credit report can show that you were late in making a payment on a consumer credit account if you were only five days late,’ said Gerard Brody, CEO of Consumer Action.
‘We already know that finance companies collate a lot of data in the context of consumer lending—they use this to identify new or current customers that are likely to be profitable. With late credit payments now available on credit reports, it will be open to lenders to respond by charging consumers higher interest rates where they deem a consumer to be a ‘bad risk’—that’s a common practice overseas where this information has been available on credit reports.†
‘But just because you’ve been late with the odd credit card repayment, that doesn’t mean it’s fair that you should be charged a higher rate on your mortgage,’ said Gerard Brody, CEO of Consumer Action.
Mr Brody encouraged consumers to get on the front foot with potential late payments.
‘Repayment history information will stay on your credit report for two years, even after you have made the late payment. That’s why it is now more important than ever to get in touch with your lender sooner rather than later if you’re going to have trouble paying a loan instalment.’
Mr Brody also voiced concerns about lobbying by the credit industry to expand the range of data on credit reports, even before the new laws have come into effect.
‘In the last week, we’ve seen the credit industry say that credit reports should include repayment history information not only for credit cards and other loans, but for essential services like your utility or telco bill’, said Mr Brody. ‘Many households struggle to make repayments on essential services, and they should not be disadvantaged further by allowing this information on credit reports’.
Consumers wishing to access a copy of their credit report can do so for free by applying to Veda, Dun & Bradstreet or Experian. Australians can find information on how to apply for their credit rating at http://creditsmart.org.au/getting-free-credit-report.
*Repayment History Information is only collected for consumer credit contracts (for example, home loans, personal loans and credit cards). Your credit file will not show any Repayment History Information about other contracts like your utility or phone bills.
†When a consumer makes an application for credit, the credit provider can check their credit file. Under the new system, the credit provider now has much more information immediately at their disposal about what type of credit risk the consumer is. The lending industry says this will help them more easily assess whether someone can pay back the loan, and so make responsible lending decisions. However it would open to lenders to, upon a consumer’s application for credit, to review a credit report with late repayments and only approve an application for a more expensive product. For example, if a consumer applies for a loan which usually has an interest rate of 12%, they might be more likely to find that the lender responds that they are only willing to give the loan at 19% because of a poor repayment history.