Understanding what information is held on a consumer’s credit report can provide a pathway for negotiating better credit terms, whether or not a person has a strong credit history.
In March 2014, changes were made to Australia’s credit reporting system, paving the way towards the introduction of comprehensive credit reporting (CCR). It is important for everyone to understand what impact the information on their credit report may have on their financial situation.
Based on interactions with the negative reporting system, many financial professionals consider credit reporting of relevance to a niche market. Clients seen as more financially literate or well-off, and therefore unlikely to have damaging information on their credit report, are often overlooked when it comes to credit education.
Credit reporting is relevant to everyone
With the introduction of CCR, understanding the system will become more important than ever for all Australians. Credit reports will progressively include a wider range of information about a consumer’s credit products and whether payments are being made on time, as well as the negative information which was previously available.
Traditionally, most consumers in Australia only became aware of their credit record when they were declined credit, perhaps because of a default on their credit report. Based on overseas experiences, such as in the US, UK and South America, we expect this to change. We anticipate that consumers will increasingly see the new credit reports, and potentially their credit scores, as evidence of good personal financial management. They may also be used as a tool to seek out better interest rates and terms with lenders.
Financial professionals, including planners and accountants, are in an ideal position to help consumers understand and take control of their credit reports, so that when they need credit, their creditworthiness is assessed accurately.
Key rights under Australian law include:
- The right to a free copy of your credit report annually from each of the credit reporting bodies. If a credit application is rejected, you are entitled to request another free credit report.
- The right to challenge and fix errors on your report, which credit providers and credit reporting bodies must investigate and correct free of charge.
- The right to escalate a complaint to an external dispute resolution service such as the Credit and Insurance Ombudsman or the Financial Ombudsman Service if unsatisfied with the investigation.
- The right to have a ban placed on your credit file to protect the credit file being accessed in cases of suspected identity theft.
Good reports can lead to better outcomes
Understanding what information is held on a consumer’s credit report can provide a pathway for negotiating better payment or credit terms, or allow financial advisers to provide advice about what steps a client can take to improve their payment behaviour.
From a business productivity perspective, richer data may also result in higher approvals and easier loan take-up, due to more efficient and accurate matching of the right finance offer for each client. The reforms are designed to improve not only the credit reporting system and the availability of credit to rehabilitated borrowers, but also Australia’s overall financial stability through prudent risk assessment.
Damian Paull is Chief Executive of ARCA, the peak body for retail credit providers and credit reporting bodies. For industry, ARCA hosts a number of events and seminars, and for consumers, there is an educational website at www.creditsmart.org.au.