Paying your loans and bills on time has taken on a new level of importance thanks to reforms to Australia’s credit reporting system.
On 12 March 2014 a ‘positive’ system was introduced to give lenders more detailed information about a customer’s credit risk and ability to repay debt. Previously, only negative information such as defaults and bankruptcies was permitted to be held, whereas the new system rewards good repayment behaviour, giving consumers the chance to improve their credit score and borrowing prospects.
Lenders are now able to see the full picture, including how many other accounts their customers have and what credit limits are attached to them. This more detailed information gives lenders a better understanding of whether a further loan would make the borrower even more overcommitted. It also means they can distinguish between high and low risk borrowers and potentially offer more competitive products to low risk clients.
Here’s some of the information that will be held in your credit file for debts like personal loans, car loans and credit cards.
- The dates which you opened and closed credit accounts
- Credit card limits and the type of card
- Whether you are five or more days late in paying. This and other repayment information (like whether you have made payments on time) stays on your file for two years.
- If a repayment of over $150 is more than 60 days late, it will be listed as a default. This stays on your file for five years.
- The number of credit enquiries you have made.
A good credit rating is an important part of securing a home loan so the impact of the changes will depend on how well you manage credit.
- If you commonly pay bills late by five or more days you might have difficulty obtaining further credit.
- If you have a good credit score you can use this to shop around and get the best deals. Your mortgage broker can also use this as an additional tool to assist in negotiations with lenders.
- If you have a black mark on your record, you will at least be given the chance to show lenders that your more recent behaviour shows that you are in fact a reliable credit risk.