Lenders will have more information about your credit history from now on

From today, lenders will have expanded access to information regarding your credit history. Under new privacy regulations, a comprehensive credit report will now include borrowers’ information such as when a credit account was opened and closed, account credit limits and repayment histories. Repayment history information will also include when a bill was due and the date it was paid. Currently, credit reports that are provided to lenders to assess whether a prospective borrower should receive a loan only includes 'negative' information, such as default events. Changes have also been made to the amount of time certain pieces of information may be retained by credit reporting agencies.

The more detailed new reporting system allows lenders to access ‘positive’ credit behaviour. According to some, the reforms will improve transparency, and may aid ‘good’ prospective borrowers who are seeking a loan. However, those with poor repayment histories may be hindered by the new system, and face more difficulties in attaining loans.

Smartline Personal Mortgage Advisers have compiled the following list of what can be covered in the new comprehensive credit report:

• Information about your monthly repayment conduct (i.e. Whether or not you have paid on time) over the past two years can now be reported.
• If you apply for credit, the decision (declined or approved) by the credit provider can now be reported.
• The current limit on all of your credit cards (and other credit facilities) can now be reported. This also means that if you get a limit increase, this can now be reported on your credit record.
• The repayment term and repayment type on all of your credit facilities can now be reported.
• A credit provider can now also provide an opinion that you have fraudulently attempted to get credit or fraudulently evaded your obligations to repay credit, or that you do not intend to comply with your repayment obligations.
• Credit defaults can be lodged on any outstanding amounts over $150 if you are more than 60 days behind on your repayments.

Source: Smartline

According to the Office of the Australian Information Commissioner, the more comprehensive repayment history information will “only relate to payments you have made or missed from December 2012. Then from March 2014, licensed credit providers can pass your repayment history information on to credit reporting bodies.” Information on repayments cannot be held for more than two years after the payment's due date.

Credit providers have begun updating their terms and conditions to reflect changes to the Privacy Act, with the Commonwealth Bank notifying customers today that its property policy has been adjusted to reflect how the bank will now collect and exchange customers' information.

According to Michelle Hutchison of comparison website finder.com.au, the new reform is a move towards "risk adjusted lending."

"Currently, interest rates are generally based on single pricing (particularly home loans), which averages an interest rate based on the lender's experience with good and bad borrowers. With access to more information about borrowers, lenders can use a risk adjusted model to base interest rates on more of an individual basis," said Hutchison.

She warns that borrowers should prepare themselves for the impact of the new credit history system, listing the following possible impacts:

• [A] risk adjusted model could mean people will receive higher interest rates than the former model if they are deemed to have bad credit. For instance, borrowers will be exposed to higher rates being offered if they have high credit limits which they don't use or can't afford in the eyes of the lender.
• With a risk adjusted model, it could lead to potentially more predatory lending, which lower income borrowers with poor credit files are most at risk
• In the US, banks advertise rates based on 'excellent credit' which is something Australian lenders could adopt. This could make interest rates even less transparent for borrowers who don't know their credit file status
• Interest rates available could widen: currently variable interest rates start from 4.49% by Loans.com.au and range up to almost 9 percent. We could see this range widen if lenders label borrowers as higher risk
• More aggressive marketing: lenders will capture more data about customers and can use this to market their products. They will be able to see what products applicants applied for in the past, amount of credit they applied for, credit limits, date account were opened
• Reselling information: in the US, it's reported that major credit reporting agencies report detailed information about individuals' credit accounts
• Less privacy: with more data being captured, there's more risk of security breaches and accuracy

As the new reforms are introduced Financial Counselling Australia is urging individuals to seek out their credit report. While credit reports can be accessed for free under the new scheme, but the organisation claims that major reporting agencies are obscuring borrowers' option to access free reports. 

Financial Counselling Australia says that although the new code requires credit reporting agencies to make the free report option as available and easy to access as the fee based service, Australia's two largest credit reporting agencies, Veda and Dun & Bradstreet prominently promote their fee based reports on their websites, but finding information regarding the free option is more difficult. 

For more information on the new comprehensive credit reporting system, see the Office of the Australian Information Commissioner's website.