As of March 12, 2014, there was a big change in the way that your credit file can be viewed by financiers and even bigger changes in relation to the sort of information that can now be recorded on your credit file in general.
One of the major changes was that the old system only recorded negative credit activity, but now the new system also allows for positive credit activity to be logged on your credit file. You may think that positive means better, but let’s break it down a little further.
Previous to the change we were one of only 4 countries in the developed world to use a 20 year old reporting system that showed lenders very basic information when they enquired on your credit file.
This data was very limited to details such as your full name, address, date of birth, previous credit enquiries and any negative “black marks” (including bankruptcies and some overdue utility bills).
What this meant was that lenders didn’t really have access to the big picture when it came to a person’s credit worthiness. They were making decisions on the successful or not successful outcome of people’s loan applications based on limited information relating to negative credit activity. There was no way for a credit consumer to showcase their positive credit behaviour to offset any negative marks that they had accumulated on their credit file.
Under the new system, lenders can now see a multitude of different information that can help them make a more informed decision including taking into account the positive lending performance of an individual. This can be a great thing and is likely to help a lot of people get their credit score back on track a lot faster than previously possible.
What happened with your current information in the change-over?
If you have previously had a default on your credit report you may have seen a change in your Veda Score if you had particular default information on your credit report:
- Consumer credit defaults less than $150 may have been removed from your credit report. The minimum amount for a default is now $150. The minimum amount for a commercial credit default still remains at $100.
- If you have a consumer credit clear-out listed on your report and this has been paid, it will be removed from your credit report if it is over 5 years old. If it is less than 5 years old it may convert back to a default.
What are the benefits of Comprehensive Credit Reporting for consumers?
The new comprehensive credit reporting system gives Australians more power to demonstrate their credit worthiness and better manage their credit profile. It now highlights good credit behaviour and you will be able to demonstrate recent good credit behaviour because the new system can record if you have made your credit payments on time.
It can also improve your credit profile faster and help you recover from credit adversity a lot quicker by showing good credit behaviour, potentially countering the impact of a default up to five years old.
For individuals new to consumer credit, the use of this new comprehensive information means that you can build credit worthiness more quickly. For example, if you are a young person or a recent arrival to Australia from overseas.
It is a more balanced and transparent system for consumers who already have a good credit history, as well as those who may have previously had trouble meeting their financial commitments as it may enable them to access quality credit where they may not have been able to previously.
With more complete credit bureau information and monthly updates, having a credit profile and showing good credit behaviour will become important when it comes time for you to try and find the best loan package.
What sort of information will lenders now be able take into account when assessing an applicant?
- Date that your previous credit accounts were opened
- Current limit of credit
- Nature of the credit account (e.g. credit cards, electricity accounts, mobile phone accounts etc.)
- Date the credit was paid out
- Monthly account payment history (for licensed credit providers only)
- Any information previously gathered in the negative geared system.
- Overdue debts like payment defaults (paid or unpaid)
What can you do to keep your credit report as healthy as possible?
- Pay your bills and loans on time and consider setting up direct debits plus have your loan repayments scheduled for your pay day.
- Keep track of your credit commitments and only apply for credit if and when you need it.
- If you are having trouble meeting your repayments talk to your credit provider, they are likely to want to assist you.
- Access your credit report and check the information is correct. You can even monitor changes through Credit Alerts and help protect your identity.
For a more detailed breakdown of the changes, take a trip to the VEDA website.
If you have more questions and would like to talk to one of our experienced loan consultants at Ask 4 Finance, please call 1300 769 177. Alternatively you can visit our website to learn more about how we could help you secure the best loan package.
This information is general in nature and does not constitute legal, financial or compliance advice. Although information may be accurate at the time of the writing of this article, Ask 4 Finance provides no undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided as regulations can change from time to time.