What is Positive Credit Reporting?
In recent media, you may have heard about the change to “Positive Credit Reporting” which came into play on 1st July 2018. So what does this mean for you if you are looking to borrow? Well first Let’s look at what negative credit reporting is.
Negative credit reporting is the system that Australia has operated under since 2014 and revolves around only noting negative events that have occurred and decisions from lenders are made primarily on any negative notes on the applicant’s credit file. Banks and lenders could see whether an applicant had applied for a loan, but would not have been able to see if they had been approved or declined. Their credit report also included details of any defaults, court judgments or bankruptcies.
Australia’s new credit reporting system (CCR) or comprehensive positive credit reporting is designed to make it easy for a lender to asses a potential applicant based on information such as current accounts they hold, what accounts have been opened or closed, the date that default notices were paid and the payment conduct and how payments were met.
The step towards this system is a positive one and will assist in responsible lending practices along with an opportunity for consumers to build a more comprehensive and positive credit report which in turn will assist in getting the best deal from a lender. The advantages of the new reporting system include:
- Recent positive conduct may balance out any prior negative events that may be on credit report
- People with a limited credit file with regards to previous loans may now have more information that will assist in the lender making a positive decision
- The credit score affected by a single negative event will have a more comprehensive picture surrounding it and give the lender a better idea of overall conduct
- It gives a more accurate look at an applicant’s creditworthiness
- It supports more responsible lending from the lender’s position
- Lenders can tailor products to suit the positive credit reporting system
What Positive Credit Reporting Means When You Apply
In practice, the shift to positive credit reporting changed what a lender can see when they pull your file. Under the old system your report was largely a record of things that had gone wrong. Under comprehensive reporting it also carries the accounts you hold, when they were opened, your credit limits, and a rolling record of whether each monthly payment was made on time.
That cuts both ways. A missed payment now shows up as repayment history information, where previously only a formal default would have appeared. But a long run of payments made on time also shows up, and that is something you simply could not demonstrate before. For a borrower who has had one difficult period and has since got back on track, positive credit reporting is generally an advantage rather than a problem.
How to Keep Your Credit File in Good Shape
The practical steps are unglamorous and they work. Set up direct debits so nothing is missed by accident, particularly on smaller accounts like phone plans and buy-now-pay-later facilities, which report the same way a loan does. Space out credit applications rather than approaching several lenders at once, because each enquiry is recorded. Close accounts you no longer use, since an unused credit card limit still counts against your borrowing capacity.
It is also worth requesting your own credit report and reading it. You are entitled to a free copy, and errors do occur. If something on your file is wrong, it is far better to have it corrected before a lender sees it than to explain it afterwards.
Written by-
Tareq Shnoudi
Australian Credit License Number- (ACL) 393048
Australian Credit Rep Number (ACR) 499191
