Comprehensive Credit Reporting – what does it mean for you?
This year the big four Australian banks have joined the ‘Comprehensive Reporting Scheme …
What does it mean? And how does it affect every day Australians?
The Comprehensive Credit Reporting (CCR) Scheme was introduced into Australia in 2014, so it has been around for a while, but it’s only this year that the big four banks have, under the insistence of the Prime Minister Malcolm Turnbull, fallen into line with the scheme.
Quite simply, because this group of four banks represent the vast majority of Australians – figures at the end of 2017 showed that Commonwealth, Westpac, ANZ and NAB together control just over 80% of all owner occupier home loans and 85% of all investor housing loans, their participation in CCR ensures that CCR data is credible.
So, what it CCR?
CCR is more comprehensive credit reporting – a better overall assessment of how well you meet your financial commitments. Before the CCR scheme was introduced, credit reports were only made up of information such as missed payments of more than 60 days and bankruptcies. However, now, all of us are being scored on our regular payments on our loans and credit cards. The system raises red flags on any missed payments overdue by more than 14 days. Essentially, CCR is a much more detailed picture than what was previously, just a basic ‘snapshot’ of personal credit history.
Before CCR changes came into effect, consumer and privacy advocates expressed their concerns – for example, that this level of detailed reporting could have adverse consequences for some consumers, (especially those with ‘bad’ credit histories) making it more difficult for these consumers to obtain credit or under the new system or be required to pay a higher rate of interest. There were also concerns that a period of temporary financial hardship caused by sudden unemployment or other personal catastrophe could impact a person’s long-term credit rating.
CCR should benefit the entire industry
However, more comprehensive data should assist the broader industry as a whole, enabling financial institutions to better understand and service their customers and get a more ‘well-rounded’ picture of someone’s ability to handle financial responsibilities and debt.
Credit agencies who lobbied for the introduction of CCR say that the new system is fairer and will provide an incentive for us all to ensure that we strive for a good credit rating by not letting our financial commitments slip. What’s more, people who do have good credit ratings should benefit from the system, with lenders able to more easily approve finance based on CCR and perhaps even offer better deals to those customers.
For First Home Buyers CCR will be advantageous
One of the big winners of the introduction of CCR will be First Home Buyers, because while their credit histories may not be long, under the new system they will be assessed across a wider range of repayment responsibilities, potentially making it easier to get a loan.
For anyone with an inconsistent income or a ‘bad’ credit rating – the system will provide a wider view of circumstances which may help lenders to work with these customers to better educate them about finance.
And, because this is a deregulated market place, there will be opportunities for lenders who specifically choose to service customers who don’t have ‘ideal’ credit histories, designing products, and services for this particular niche.
MoneyLink Financial Planning Pty Ltd is an Australian Financial Services Licence Holder. No:.247360
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