Investors warned about credit rating pitfalls
With lenders starting to collect and share more detailed information on individuals’ credit history, investors have been told to prepare for the ongoing effects of the new reporting regime.
Smartline Personal Mortgage Advisers said despite change to the Privacy Act – which allowed more detailed information to be recorded – being introduced in March 2014, borrowers will increasingly notice the difference in 2015.
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The group said that in the coming months, the new data available to lenders will be used more and more to assess credit applications.
The changes saw Australia move from a ‘negative’ credit reporting system, which saw only negative information about credit history (such as defaults and bankruptcies) and applications for credit reported – to a ‘positive’ system.
With the new system, credit providers can access more comprehensive information that “should assist them make better lending decisions”, Smartline said.
Up until now, lenders could only see the following information:
• Your defaults (only those over 60 days in arrears)
• Your insolvency history (i.e. bankrupt events)
• Your credit applications (although they could not see whether your application was approved or declined)
From now, however – as the new system is gradually rolled out and adapted and implemented by lenders – they will be able to see all this, and a lot more:
• The date that your credit was opened or provided (i.e. if your application was approved)
• The type of credit that you have and what your credit limit is (if you have used up all of your credit)
• The date that a credit account was closed
• Two years of month-by-month minimum repayment history on each credit facility you have
Executive director of Smartline, Joe Sirianni, said the changes are not “necessarily a bad thing”, but he reminded investors that it has never been more critical for them to be on top of their debts.
“It’s likely that we will start to see situations where clients with good credit ratings will be offered a better deal. People will be able to recover faster from financial adversity and it will be quicker to establish a credit report.
“As a result, keeping your credit rating clean has never been more important,” he said.
Smartline offered property buyers the following tips for managing their credit record under the new regime:
• Ensure it is accurate and up to date – get any errors corrected
• Manage the risk of identity theft – protect your details and monitor for misuse
• Redirect bills and update address details with all credit providers when moving
• Close unused credit facilities
• Pay bills on time – especially in the lead-up (6 to 12 months) to applying for credit
• Apply for credit only when it’s necessary – limit shopping around
Mr Sirianni said time was quickly running out for those investors who have not adjusted to the changes.
“While the new system has been in place since early 2014, the rubber meets the road in 2015 and borrowers will find that their credit providers can now view a lot more information about their credit behaviour,” said Mr Sirianni.
“Most of Australia's lenders have agreed to provide your data to the credit reporting agencies. If a lender does not report this information they do not get to see the information from the other lenders, so we would expect that it’s just a matter of time before every licensed credit provider shares this information.”