A recent change to credit reporting in Australia has been the switch from negative to positive credit reporting – but what does that actually mean?
Negative Credit reporting was the system Australia used until March 2014, it was based on the negative spots you had on your credit history and lenders used this to assess risk. It held information on credit applications you’d lodged but not whether they were successful or the reason for withdrawal. Additionally, it held details of any overdue debts, defaults, bankruptcy or court judgements.
Positive credit reporting or Comprehensive Credit reporting is the system Australia operates under now. The new system includes details of accounts you currently hold, dates that you paid defaults and the consistency with which you make your repayments. This provides lenders with a balanced assessment of a borrower’s credit history.
|Good for your credit rating||Bad for your credit rating|
|Paying bills on time||Applying too often for credit cards or loans|
|Not applying for new credit cards or loans||Applying and being rejected for a credit card or loan|
|Paying off outstanding loans and credit card debt||Making late payments on your credit card or loan|
|Making your monthly repayments on time every month||Bills or payments for at least $150 that are overdue by 60 days or more|
|Having a consistently low balance on your credit card||Getting a balance transfer credit card but not repaying the balance transfer by the end of the promotional interest rate period|
|Having an available credit limit much higher than your usual credit balance||Getting multiple balance transfer credit cards one after another|
|Hanging onto “good” credit accounts where you have faithfully made repayments on time for several years|
Not only is this a positive change for lenders and borrowers it brings Australia in line with other OECD countries, allowing both Overseas and Australian citizens to use their credit rating as leverage when applying for a loan in foreign countries.
Some parties have raised concern over the additional information now being kept, but we believe the benefits outweigh the negatives. For example.
- Recent positive behaviour is registered (e.g. if you have made all required payments in the past year), which can balance out any previous negative slip-ups (e.g. a missed payment a few years ago).
- People with a “thin” credit file or a very short history of credit will now have more information in their file concerning their credit-worthiness, making it easier for banks to extend credit to them.
- The credit scores of individuals will not be significantly impacted by just one single negative event (e.g. a missed payment). Instead, it would take the credit report listing repeated missed payments or a general pattern of credit stress to impact on an individual’s credit rating.
- An individual’s credit score or credit rating is more accurate and comprehensive, compared to a credit score that was constructed using negative reporting.
To understand your credit score better and to find out what your credit score is, ASIC have provided a website. Click this link for more information: ASIC moneysmart Credit Score