Putting the positive into comprehensive credit reporting
Australia moves to comprehensive credit reporting (CCR)
After lagging behind other major developed economies such as the US and the UK for many years, the Federal Government announced in November that Australia would finally move to a positive comprehensive credit reporting (CCR) system over the course of next year with final completion mid-way through 2019. While this is welcome news for consumers and businesses who may want or need to get finance from time to time, the detail about CCR for many people can be hard to grasp. So, here we explain what it means and how it could lead to Australians getting a better deal by using the everyday financial information that belongs to them, not the bank or credit provider which could give them a loan.
What is positive comprehensive credit reporting (CCR)?
Quite simply, it means that banks, institutions and lenders like SocietyOne can use more detailed information on your financial background including your good credit history to work out the benefits and risks in lending money to you. For example, unlike the current system that focuses on negative details such as payment defaults, court judgements and the number of credit application enquiries which "hurts" your credit profile and sees your credit score go down, positive CCR looks at how good you have been with credit overall. Credit providers will, in future, be able to see:
- When a credit account has been opened or closed (the start of an existing or past loan and when it was repaid);
- The type of credit facility (mortgage, credit card, personal loan, car loan etc) and the available limit;
- Your last 24 months repayment history.
Together, this information will help credit providers to assess how good a customer or potential customer has been in managing their finances, whether the risk of lending to someone fits their credit criteria and how much and for how long they will lend them money. For customers, it means that they will get rewarded for having a good credit history, not be penalised for one or two missed payments if a small glitch happens in their life and allows them to shop around for a better deal that suits them without that being held against them. And for those consumers who, at the moment, might not be able to get finance because their credit history doesn't come up to scratch, positive CCR will allow them to improve their financial position over a period of time through better budgeting, repayment and spending decisions.
How will that information be shared and will it be safe and secure?
This data already exists but the vast majority of it is held by the large banks and lenders and is not shared among themselves or smaller financial institutions. What the Federal Government has announced is that the previous voluntary system which was introduced in March 2014 will now be made mandatory, initially focusing on the big four banks who hold most of this data given their 80% share of the lending market. The major banks will have to make available half of their credit data for sharing by 1 July next year (2018) and increase that to 100% of their information by 1 July 2019. At present, that sharing figure is less than one per cent.
What does the Government say about positive CCR?
In his announcement on 2 November, the Treasurer said that CCR will give lenders access to more and richer data, encouraging competition between them including new providers like SocietyOne to help consumers and small businesses looking for finance. It will also improve the capacity of credit providers to meet their responsible lending obligations as set by the regulators. Those regulations require us to ensure a customer is able to repay their loans based on their income and spending needs. The Treasurer described the changes as a "game changer for both consumers and lenders, resulting not only in greater lending competition but also better access to finance for Australian households and small businesses".
Where does SocietyOne stand on CCR?
We've supported this ever since we pioneered peer-to-peer lending in Australia more than five years ago. Having access to more financial information about our customers allows us to provide them with an individually tailored interest rate and therefore a better deal based on their own financial circumstances, not the current one-size-fits-all approach of the major lenders. And we haven't waited for the Government's move to force lenders to provide this data. Having helped thousands of customers through our personal loans, providing over $350 million from our investor funders, we have data that is worth sharing to help us and others to make better decisions for consumers. So, we went positive comprehensive credit reporting on 1 November this year to play yet another part in helping all Australians to get a better deal.
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