These are the reasons why you may have seen a change in your credit score.
From July 1, 2018, comprehensive credit reporting will be mandated. This means that from July 1, 2018, the big four banks need to share 50% of your credit data to credit bureaus.
Then, by July 1, 2019, the big four banks must share 100% of your credit data to credit bureaus. These are some of the major outcomes of the Royal Commission into the Financial Sector.
The key difference of the new Comprehensive Credit Reporting System, which is new to Australia but widely used around the world, is that now as well as negative credit information like defaults, your credit report may also list positive credit information, such as up to 24 months of your repayment history.
So, if you have made some mistakes leading to bad credit, but then made improvements such as always making repayments on time, your credit report will now reflect a more balanced perspective of your credit habits.
We’ve previously written about what comprehensive credit reporting (CCR) is, you can catch up by reading these two blogs:
- What are your thoughts on comprehensive credit reporting?
Today, we want to discuss how CCR will change your credit score and how this may impact a future application for any type of credit. This includes a home loan, refinance, debt consolidation loan, investment loan, personal loan, car loan and just about any type of credit application.
Check your credit score
You should check your credit score regularly anyway, however, after July 1, 2018, you may see an increase or decrease as CCR rolls out.
If you don’t know how to check your credit score, it’s actually free in most instances. You can request a copy of your credit report from a credit bureau or we can help, just ask!
Have you seen an increase in your credit score?
If your credit score has increased, that’s a great thing! Credit is scored between 0 and 1000 (sometimes 1200) with 1000 being the best score possible. If your score has improved, this means that creditors can see there is less risk associated with lending to you. Because of this, you may get better interest rates. Your credit score may improve as your credit habits do. Some actions that may lead to an increase in your credit score include:
- Making repayments on time
- Not getting rejected for credit applications
- Repaying debts sooner or making additional repayments
Have you seen a decrease in your credit score?
If your credit score has decreased you may need to get advice on how to make some small changes that can potentially allow you to increase your credit score over a period of time. A borrower with a low credit score demonstrates a higher risk to a creditor. If you’re in this position you may not get the lowest interest rate possible or the loan value you want. Some actions that may lead to a decrease in your credit score include:
- Constant late repayments (setting up direct debts can help!)
- Frequent rejections for credit (don’t apply too many times, if you keep getting declined, get advice on why!)
- Defaults (if you can’t make repayments, many banks will offer a solution such as putting a debt on hold – reach out and ask before your debt turns into a default. Defaults can stay on your credit report for up to 5 years so it’s best to avoid them where possible!)
- Consolidate your debts (consolidating debts may simply your repayments and help you get ahead!)
For more information on comprehensive credit reporting, to find out the health of your credit score, or to see if you can consolidate debts, our friendly team can help! Call us on 1300 652 842.