What does the new Comprehensive Credit Reporting mean for you?
If you’re in the market for a new mortgage or even a personal loan or credit account, you may have heard about the recently introduced ‘Comprehensive Credit Reporting’. But what is it, and what is its relation to credit scores?
Comprehensive Credit Reporting (CCR) is the new format of your credit file that allows lenders to share more information with each other than ever before. This information can be a benefit to you or a hindrance – depending on how well you manage your credit payments.
Previously, the only things that appeared on your credit file were:
– Credit enquiries made by providers
– Defaults on credit payments (no matter how small or late)
– Personal insolvencies
– Finance related court actions
– Additional information such as cross-reference files or directorships etc.
What’s more, the old credit files did not show:
– Repayment history on your liabilities
– The credit limit of those facilities
– Whether credit accounts are still open or if they are closed.
Changes under the new system
Under the new CCR system, your credit file or report will now show:
– All the above information (although in a slightly different format)
– A 24-month history on all credit facilities that were open during the last two years
– The repayment history on each credit facility in summary and in detail.
The first couple of pages on your new-format credit report give an overall summary of your credit file. It then goes into more detail and provides more comprehensive information into the conduct of all of your credit facilities.
In the past, a lender would only see if you defaulted on a credit payment or recovery action was taken against you. They couldn’t see if you were behind in your payments unless they asked you to provide a statement from that credit facility. However now even if you have paid out and closed a credit account, it will still show the prior history as far back as 24 months, and just indicate a ‘C’ to show when it was closed.
What is so different now for a borrower?
The changes were implemented reasonably seamlessly and without great fanfare outside the industry. It may cause confusion and worry for some borrowers who previously had poor or late repayment history, even if everything has been up to date and on time for six or more months.
Now, lenders can dig up your past 24 months of credit payments, not just defaults and court actions, whereas previously they would only have seen late payments of 30 days or more that occurred in the past six months if you were required to provide the statements to the lender for those liabilities.
On a potentially positive note, lenders are saying that, by being able to demonstrate a solid repayment history, punctual and reliable borrowers could find it easier to be approved for a loan.
Still too early to tell
As brokers, we are not quite sure how this will be positive for borrowers when most lenders still require all the supporting statements, as well as accessing the information as far back as 24 months. We are looking forward to the lenders deciding how they will actually assess the applications with this information being shared, and WhiteStar will keep you updated on emerging trends in lending and mortgages.
Are credit reports and credit scores the same?
No, they’re different, but they are linked. A credit report is a detailed file on your credit history over the past 24 months. In Australia, there are three main credit reporting agencies. And each agency has a credit scoring affiliate which takes the data from a credit report and converts it into a single score (usually out of 1200 and the higher, the better). Your credit score gives a snapshot of your credit repayment capabilities, from ‘poor’ to ‘excellent’.
Apply through a broker or go straight to a lender?
If you are planning on purchasing a new property, refinancing, consolidating debts, or you need finance for renovations or a new car, we highly recommend gaining a deep understanding of your credit report before you apply to a lender.
Just by approaching a lender directly and making an application, you trigger an enquiry entry to be added to your credit file. If you don’t fit that lender’s criteria and apply to a different lender that’s another enquiry added to your credit report. Multiple enquiries can often affect your credit score in a negative way.
However, if you enquire through a mortgage broker – especially one who is very familiar with a range of lenders and already knows their lending criteria and policies – such enquiries don’t appear on your credit file. Why? Because a broker is simply requesting or accessing a copy of your credit report: they are not reporting or making an enquiry on your file. Naturally, this reduces the risk of impacting your credit file, while they’re narrowing down the search for a lender and a loan that’s right for you.
When it’s time to take the first step
If it’s time to look into taking out a mortgage or other loan, make sure you have a chat to our team as early as possible so that our team of specialist finance experts can make an objective assessment of your credit report and help find the loan that perfect, with minimal impact on your credit score.
What does a credit report look like?