What does comprehensive credit reporting mean for you?
Australia is transitioning to a new system of comprehensive credit reporting – our friends at ME, your industry super fund-owned bank, break down what it means for you.
Many of life's important moments can depend on gaining access to credit when you need it, such as buying a home or a new car, getting married or taking an overseas holiday.
Your credit report is one key input lenders use when determining whether you can borrow and how much. Your credit report is compiled by a credit reporting body and used by banks and other lenders when you apply for credit to help them assess whether you are likely to pay it back.
What is changing?
Following industry–wide changes, your credit report will soon show a much more comprehensive picture of your credit health.
In the past, your credit report included information such as whether you had a default – meaning you had fallen behind with a repayment by 60 days or more and your lender has tried to get you to pay – but now it can also tell lenders how much debt you have available, and if you pay your loan payments on time. This helps lenders to determine if you manage your debt responsibly.
If you pay on time, your credit health will improve
Under the new system, if you've been making repayments on your existing debt on time, lenders can deduce that you are in good financial health and that you are more likely to be able to repay a new loan or credit card. The new system will help lenders to identify when customers are credit stressed or over–committed before extending further credit, helping them to lend responsibly.
You may also find it easier to access new credit and have more choice than you would have before the introduction of comprehensive credit reporting.
People with very little credit history previously may now find it easier to get a loan. Lenders can see that they have been regular with repayments on a credit card or loan obtained years earlier.
Another major advantage of the new system is that it need not be a disaster anymore if you have a default. Although a default stays on your credit report for five years, if you keep paying your credit card bills and loan repayments on time after the default, lenders will be able to see that you are now adequately managing your debt.
What should I do?
Check your credit report regularly. Everyone can obtain a free copy annually from each of the credit reporting bodies. If you see anything wrong with your credit report, you can contact your lender or a credit reporting body so that any errors can be corrected.
It's more important now than ever to pay your debts on time, and if you do, this will be reflected favourably on your credit report.
This article is brought to you by ME and the Australian Retail Credit Association. For more information, please visit the CreditSmart website.
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