Positive credit reporting: What it mean for home loans?

There’s more to it than you think
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    Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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Positive Credit Reporting, also known as Comprehensive Credit Reporting (CCR) is a brand new reporting system that makes it easier for lenders to get an overview of your lending history when you apply for credit.

When you apply for a home loan in Australia the bank or lender will ask for your permission to obtain a copy of your credit report.

From 1 July 2018 positive credit reporting is mandatory for all of Australia’s big banks, and they need to have at least half of their customers on the platform and by 1 July 2019, they need to show comprehensive credit reporting for all customers.

credit files in australia

Nearly 62% of Australian’s are ‘credit active’

What did credit reports previously show? 

The information in your credit report shows your credit history if you have had a good credit history it shows the lender you are lower risk and more creditworthy than someone who has had defaults or unpaid loans in the past.

Before 1 July 2018 banks only based their credit reporting assessment on whether you had any negative information on your credit file. The level of information contained was pretty basic, it recorded things like account number, type of credit application you made (but not if you proceeded with the application, or if it was approved) and included details of any overdue debts, defaults, bankruptcies and court judgments against you.

positive credit reporting 3

Negative Credit Reporting only held limited information.

What will Positive credit reporting show? 

Positive Credit Reporting is also known as Comprehensive Credit Reporting (CCR) and will give lenders much more information on home loans, including a complete history and current snapshot of credit cards and bank accounts you have within Australia.

Positive credit reports will now include information about any current accounts you have, which accounts have been opened (and closed), the date made any payments on default notices and most importantly how well you meet your ongoing repayments.

positive credit reporting

Positive credit reporting will give the lenders much more information when applying for a home loan.

How will comprehensive credit reporting affect applying for a home loan? 

When you apply for a home loan using the positive credit reporting system, banks will now have access to see if you have been repaying your personal loans, car loans, credit cards or home loans over the past 2 years – including any accounts that you have also closed in this time.

Previously under the old negative reporting system, your credit report wouldn’t show any information about how well you’ve been paying off your home loan, personal loan or credit card so now the banks will have a much more comprehensive picture of your personal repayment history.

Positive credit reports do not contain the most recent 14 days of information, so it is likely they are still going to want to get copies of your home loan and bank statements.

Positives of positive credit reporting:

  • All of your hard work making repayments on time will be recognised: If you’ve always kept your credit card, or personal loan repayments on time the banks will know you’re in a good position to look at a home loan.
  • A few mistakes in the past can be balanced out with good conduct: If you moved house a 4 years ago and got a phone bill default, but have kept perfect conduct on all of your accounts since the good behaviour will balance out the negative of having a default on your credit file.
  • Having a short credit history will be a thing of the past: Some first homeowners get a home loan before they get a credit card. Previously this might have impacted them as they didn’t have a long credit history, now positive credit reporting will give the banks more data.
  • Your credit score won’t be significantly impacted by one bad event like a missed payment: As positive credit reports your last 24 months of payment history, one lone missed payment can be explained and provided there isn’t a general pattern of credit stress the banks will still be able to understand you are a creditworthy borrower.

What is an example of how positive data will help loan applications?

Here are a few examples of how a bank or lender would look at and assess people with negative and positive credit reporting.

examples of credit reporting

As you can see the extra information will change the way lenders make decisions based on credit files.

Where can I get a copy of my credit report?

Did you know over 65% of Australian’s have never checked their credit score? 

Knowing your credit score and how it may impact your finances in the future is critical – a bad credit score could stop your property plans before they even start!

We recommend checking your credit score at least once a year, which can be done for free using MyCreditFile which is run by Equifax.

At Hunter Galloway we can also assist with getting a copy of your credit report if you would like a copy get in touch here.

credit score

Your credit score gives the banks a quick way to assess your creditworthiness.

Your credit report will show your complete view of your credit history in Australia.

What stuff should I check on my credit file?

The banks are required by law to make sure the information on your credit file is up to date and accurate – but from time to time errors can happen, and information might not be passed on or can be wrong.

We’ve seen situations where people had loans appearing on their credit file they did not know about and this can potentially identify identity fraud.

In short, it’s worth double checking the following information on your credit file:

  • Loans and Debts: Make sure these are your debts, the amount is correct and that there aren’t any duplicates.
  • Defaults: You will see default on your credit file if your repayments are more than 60 days late and the amount due was over $150. Check these details are correct and you did receive the notices listed. If you have settled the overdue amount make sure it is showing as ‘paid.
  • Your personal information: Check your information on the report is correct, like your name, gender, date of birth, current address, drivers licence number and current employer.

What sorts of things impact my credit score?

As you can see below, in the old negative reporting system something as simple as having multiple credit applications in a short space of time or lots of short-term credit could decrease your score.

In the new positive credit reporting system keeping your accounts up to date, and having a history of making your credit repayments on time can help positively increase your credit score.

What doesn’t impact my credit score?

A late phone bill won’t impact you unless you go into default and getting a pay rise or changing jobs won’t negatively impact your credit score… but it gets more complicated.

According to Experian, “A score may go up or down because of new information, but not always. For instance, if you already have a very low credit score, a new default may not lower your score any further. Similarly, a default will stay on your credit report for five years even once you pay it off, and should there be other defaults on your file, your score may not necessarily increase. Likewise, if you already have a very high credit score, continuing to make your payments on time may not make your score go any higher. It’s important to note that there is no quick way to fix a credit score – repairing bad credit takes time.”

Is there anything else I should do? 

Positive Credit Reporting is going to be here to stay.

Talk to our Mortgage Brokers to review your credit report, get a free copy of your credit report and see what your home loan options are, or give us a call on 1300 088 065.

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Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
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