This month, we saw important changes come into effect that could impact your ability to take out a home loan – or make it easier, depending on your credit history. In this article, we explain the new credit reporting changes and how they may affect you.
But first, let’s start with the basics – what is a credit report and why is it important? Remember, if you have any questions, your mortgage and finance broker is a great source of information.
Read Related Article: Comprehensive Credit Reporting: The Truth
WHAT IS A CREDIT REPPORT?
Credit providers like banks, utility companies and telecommunications carriers provide details about your credit habits to credit reporting bodies. These agencies use this information to compile your credit report.
Among other details, your credit report contains your credit rating. This is a numerical value between zero and 1200 that represents your creditworthiness and how reliable you are as a borrower. The higher the score, the better.
WHAT IS YOUR CREDIT REPORT USED FOR?
When you apply for a home loan or another type of loan like a car loan, the lender will use your credit report to help them decide whether to approve the loan. They’ll consider details like your repayment history when assessing your ability to repay. Only licensed credit providers can access the repayment history information contained in your credit report.
From July 1, Comprehensive Credit Reporting (CCR) became mandatory for the big four banks. In the past, banks may have only shared negative financial information about you with other lenders, but under the new CCR regime, they’ll have to pass on positive information about you as well. Technically CCR has been in place since 2014, but the Australian Government recently made it compulsory for the big four banks to participate in the program to use credit reporting information to assess lending risks.
Here are some examples of the type of information that may now be shared:
Negative financial information:
- Payment defaults
- Overdue payments
- Declined credit applications
- Bankruptcy situations
HOW WILL THE CHANGES AFFECT YOU?
The new credit reporting system will give lenders a more complete picture of your credit position. What that means is that they’ll have access to a more comprehensive set of data when assessing loan applications, so it will be easier for them to assess if you can afford to take on more debt.
If you have a positive financial track record, it’s likely your credit score will improve following the changes. Consequently, it may be easier for you to be approved for a home loan. You may even be able to negotiate a better deal (or have us do it for you).
HOW TO KEEP YOUR CREDIT REPORT HEALTHY
Here are some tips to keep your credit report in check:
- Pay your bills and make loan repayments on time
- Pay your credit card off in full each month
- Lower your credit card limits
- Consider consolidating debt (speak to us about this)
- Limit your credit enquiries, as frequent applications can look bad on your credit report
- Remove your name from utility bills if you move
- Be cautious about identity theft.
HOW TO ACCESS YOUR CREDIT REPORT
You can access a copy of your credit report for free once a year from credit reporting bodies. The main ones are Equifax, Dun and Bradstreet, Experian and Tasmanian Collection Service. Simply visit the ASIC MoneySmart website to find out more here.
LIKE TO KNOW MORE?
Your mortgage broker will be happy to explain how the changes to credit reporting may affect your eligibility for a home loan. Remember, for a lot of borrowers, mandatory CCR is likely to be a good thing, as it may improve your chances of being approved for a loan. It’s also expected to increase competition between lenders in future, which is a win for borrowers. Whatever your finance needs, we can assist, so please get in touch today.
FINANCE FOCUS | JULY 2018
The information provided in this page is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs. You should seek independent advice from your financial adviser before making any decisions.
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS (AMAFA)
Phone: 07 3378 2056
Fax: 07 3378 2069