A new credit scoring system: How it will affect you

Jessie RichardsonDecember 7, 2020

The current credit rating system for borrowers is set to be overhauled next month with the introduction of a new, more comprehensive process.

Known as the comprehensive credit system (CCR), the new scheme will offer much more detailed information to lenders when borrowers seek a new loan. Currently, a borrower’s credit file is protected under the Privacy Act, with a limited amount of information available to lenders.

Under the current scheme, a lender can only access information on credit enquiries and major ‘negative’ credit events such as defaults or bankruptcies. When the CCR is introduced on March 12, lenders will be able to access information such as when an account was opened and closed, credit limits, types of credit accounts and repayment histories.

With detailed repayment history information soon to be available to lenders, the new system provides an incentive for prospective borrowers to pay their bills on time. Under the CCR, any failure to pay a bill of more than $150 more than 60 days after its due date is classed as a ‘default’, which will be listed on the credit file, along with any resultant repayment arrangements. The CCR will not include any foreign credit information.

According to Robert Projeski, director of Australian Mortgage Options, the new system will benefit borrowers with good financial histories, but may hinder those with poorer credit files.

"This should be seen as a positive by people with a good credit rating, looking to borrow but also something to keep in mind for existing mortgage holders," Projeski said.

"Previously credit reports had identified negative details, defaults and bankruptcies. Now lenders will have a real indication on how good a consumer is when it comes to their financial affairs.

"If you are behind on repayments this information will be more transparent and this can affect your standing when you apply for credit."

He recommends that borrowers use the introduction of the new scoring system as an opportunity to evaluate the state of their finances.

"With the changes to start in March, it’s a good time to get a financial health check to ensure your financial affairs are in order and that you stay on top of them," he said.

"I would suggest people look into the options such as setting up an offset account or perhaps using lump sum payments such as tax returns to get ahead on your repayments now and stay ahead."

jrichardson@propertyobserver.com.au

Editor's Picks