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. The information in your credit report shows your credit history. A good credit history shows the lender you are lower risk and more creditworthy than someone who has had defaults or unpaid loans in the past.
In this post, we will talk about Positive Credit Reporting, how it affects your home loan application, and how you can improve your credit score.
Positive Credit Reporting was made mandatory on 1 July 2018 for all of Australia’s big banks, and they had to show comprehensive credit reporting for all customers by 1 July 2019.
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What did credit reports previously show?
Before 1 July 2018, banks used negative credit reporting and based their credit reporting assessment on whether or not you had any negative information on your credit file. The level of information was pretty basic—it recorded things like account numbers and included details of any overdue debts, defaults, bankruptcies and court judgments against you. It also included the type of credit application you made but did not record whether you were approved or declined.
What does Positive Credit Reporting show?
Positive Credit Reporting, also known as Comprehensive Credit Reporting (CCR), gives lenders much more information, including a complete history and current snapshot of your credit cards and bank accounts within Australia.
Positive credit reports now include information about your current accounts, which accounts have been opened (and closed), any payments on default notices, and, most importantly, how well you meet your ongoing repayments.
How does 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. This also includes any accounts that you have also closed during this time.
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. 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 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 a good candidate for a home loan.
- Your good conduct can balance out a few mistakes in the past. If you moved house 4 years ago and got a phone bill default but have since kept perfect conduct on all of your accounts, 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. As long as there isn’t a general pattern of credit stress, the banks will still be able to consider you 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.
Where can I get a copy of my credit report?
Did you know over 65% of Australians 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 plans to buy property before they even start!
At Hunter Galloway, we can also assist with getting a copy of your credit report. If you would like a copy, call us on 1300 088 065 or get in touch here.
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 ensure the information on your credit file is up to date and accurate. However, errors can sometimes happen—information might not be passed on, or it can just be wrong.
In short, it’s worth double-checking the following information on your credit file:
- Loans and Debts: Make sure these are your debts. We’ve seen situations where people had loans they did not know about appearing on their credit files. Once you are certain the debts are yours, check that the amount is correct and that there aren’t any duplicates.
- Defaults: You will see a default on your credit file if your repayments are more than 60 days late and the amount due is over $150. Check that 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 that your name, gender, date of birth, current address, driver’s licence number and current employer are all correct
What sorts of things impact my credit score?
As you have seen, 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 increase your credit score.
What doesn't impact my credit score?
The following won’t impact your credit score:
- A late phone bill won’t impact you unless you go into default.
- Checking your credit score won’t impact it negatively as this is considered a ‘soft enquiry.’
- Your income does not affect your credit score. Your credit score shows how well you manage money rather than how much you earn.
- Investments. Your investments or savings do not have an impact on your credit score.
- Personal information like your gender, race or religion does not affect your credit score.
- Getting divorced might not directly affect your credit score. But sometimes, after a divorce, accounts and loans can be split, affecting your credit score.
- Paying with a debit card won’t affect your credit score because when you pay using a debit card, you are using the money you already have in your account and not borrowing anything. Paying with a credit card is essentially borrowing, so that will affect your credit score.
- Getting a pay rise (or pay cut) or changing jobs may or may not impact your credit score.
Things that affect your credit score are simple and complex at the same time.
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.”
How can I increase my credit score?
- Pay your bills on time. The easiest way to implement this is to set up all your bills on a direct debit so you always remember to pay them.
- Keep track of your credit file. There are several services that will SMS and email you whenever a company inquires on your credit file. This service is only getting increasingly important as cybercrime increases and will allow you to catch it early. As mentioned above, you can use Illion or Equifax.
- Dispute any inaccuracies on your credit file. There are countless stories where people have had information listed on their credit file that wasn’t theirs. This usually happens if you have a common name, and we would need to rectify it straight away.
- Limit the number of credit inquiries. Try to avoid having a hyperactive credit file at all costs, e.g. applying for too much credit in a short period. As a rule of thumb, it is best to limit your activities and inquiries to at most five a year. Remember, Telco and utilities also count.
- Limit the number of banks you bank with. We suggest having no more than two providers, and ideally one. Having many banks makes it harder to manage your money. This is because the more institutions you have, the greater the chance of missing a payment and not having sufficient money to cover a direct debit.
- Remove unwarranted defaults. The first thing to do is get a copy of your credit file and double-check it. It’s common for defaults to be listed without you even knowing. If this has happened to you, there is no need to despair. It’s likely the provider didn’t follow the required protocol of contacting you and ensuring you had a chance to remedy the payment. In cases like these, there are countless credit repair lawyers who’d be able to rectify this wrong.
- Don’t change your job or location frequently. Most people don’t know this, but the more you move, the lower your credit score. Lenders want to be able to find people they lend money to, so the more you move, the higher the chance of it being harder for the lender to find you if things go belly-up. So aim to stay in the same location and job for at least 24 months at a time.
Summary and next steps
Positive Credit Reporting is here to stay. With static credit score, if you had missed a payment on your credit card or personal loan, all you needed to do was close it down, and the problem was gone.
Now there’s no escape because the record stays on your credit file for up to two years. This means now it is even more important to pay your bills on time and in full.
Talk to our Mortgage Brokers to get a free copy of your credit report. We will also review it for you and see what your home loan options are. So, call us on 1300 088 065 or book a free assessment online to see how we can help.