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If you’re in the market for a home loan, it’s important to know about comprehensive credit reporting (CCR). This is a new system that was introduced in Australia in March 2014, and it affects how lenders assess your creditworthiness. Here’s a brief overview of how CCR works:
Under the old system, known as ‘negative reporting’, lenders could not see your repayment history, rather, negative credit reporting displayed applications for credit and adverse listings only. This meant that borrowers with a good credit history weren’t able to rely on their long track record of timely repayments, because lenders couldn’t see the full picture. The old system allowed lenders to base their loan assessments on whether you had any negative reports in your credit history.
The CCR system (also known as positive credit reporting), provides all the information previously included under the negative credit reporting regime, with the addition of any information on current accounts a customer holds, any accounts opened or closed and up to 24 months of repayment history, including whether borrowers met their repayments on time.
The idea behind CCR is that it gives lenders a more complete picture of your creditworthiness, which, in theory, should make it easier for borrowers with good credit history to get approved for loans. It may be useful to individuals who have only a few blemishes in their credit history, such as one or two late payments.
CCR is designed to provide a greater level of information to lenders, and with this additional information comes both benefits and potentially disadvantages depending on your own credit file.
Generally, if you are certain that you have made all your credit repayments on time over the past two years, then you don’t have a worry with either system. You can turn your attention to the pricing, product features and other aspects of the various home loan products out there, to determine the best loan for you.
However, you may have had a situation where 12 months ago you were unfortunately late on some loan or credit card repayments. These will show up on a CCR and may prompt more questions about your application from a lender.
It’s important to note that CCR is not mandatory for all lenders. There remains a segment of lenders who have elected to remain on the old “negative” reporting system. This may be due to the amount of expense and effort that lenders must put into utilising CCR: while it provides richer data, to get access to the data, lenders must supply the same data. Enabling the data flow is quite an involved project and once a lender joins the CCR system, they must also comply with ongoing data requirements. Some lenders (in particular smaller lenders or start-up groups) don’t want or cannot afford to take on this additional commitment and cost, hence why CCR is not operating uniformly across the home loans industry as yet.
How does comprehensive credit reporting work?
Comprehensive credit reporting lets lenders see your good credit history from the past 2 years. This includes things like how often you’ve repaid your debts on time, how much credit you have available, and any defaults or bankruptcies. Previously, credit reporting agencies only recorded your negative history: such as overdue payments, defaults, court judgments, bankruptcy and so on.
Any positive history you had was not reported, so when it came time to take out a loan or apply for a credit card, your application was assessed solely based on the negatives in your history. Now, with CCR, both your positive and negative information is stored on credit files to hopefully improve your chances of applying for a line of credit.
It’s important to note that CCR is not mandatory for all lenders. Some lenders may still choose to use the old ‘negative reporting’ system,
Whilst CCR was introduced in 2014, it was not made mandatory at the time, even for the ‘Big Four Banks’. As of the 28th of September 2022, all currently regulated institutions will be required to provide comprehensive credit data. This includes the four major banks (ANZ, CommBank, NAB & Westpac), who are now required to share 100% of your credit data with credit bureaus.
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What information is recorded under the CCR regime?
New information appearing on your credit file may include:
- Two years of repayment history for accounts such as credit cards, home loans and personal loans
- How often you make repayments and if you make them by the due date
- Any credit you have applied for and if you’ve been approved or rejected
- The type of credit accounts you open and the name of the credit providers
- The dates you open and close accounts
- The current limit on your credit accounts
Not included is data about your utility or phone bills. You will only see these mentioned in your credit file if you’ve missed a payment by at least 60 days.
Do borrowers benefit from comprehensive credit reporting?
If you’ve managed to be on top of any debts or repayments over a period of time, then CCR should help paint you in a better light in front of lenders and may help you obtain better loan terms. With lenders now able to access information and gain a broader understanding of your credit history, they can make more informed decisions when it comes to assessing your loan application.
Whether or not a more extensive credit history will impact your credit score positively or negatively is difficult to say and depends on the individual circumstances.
Positive credit behaviour that may improve your credit score would include:
- A history of making timely repayments
- Limited applications for unsecured credit
- Sought credit from reputable lenders
On the flip side, negative credit behaviour that could adversely impact your credit score might include:
- A history of late payments
- Frequently seeking short-term loans
- An unusually high number of credit applications
There was a school of thought that CCR would bring a much richer level of credit information and allow lenders to price more aggressively for borrowers with good credit risk. It is unclear if this is actually the case, but what we do know is that lenders who subscribe to the CCR system have a deep history of information available to them about you as a borrower. Knowing what shows up on your Comprehensive Credit Report is an important step in identifying the best lender to meet your requirements.
Your best pathway forward is to chat with a mortgage broker who can (following your written approval) access your CCR file via what is referred to as an “Access Seeker” account. This leaves no enquiry on your file and has no impact on your credit score. With the file to hand, a broker can examine your history and identify any potential issues prior to recommending a particular loan product or lender. In some cases, a lender that does not subscribe to CCR may be the “pathway of least resistance”.
Get in touch with us today to chat to one of our local Yellow Brick Road Home Loans mortgage brokers to find out more about how positive credit reporting can be an advantage when applying for a home loan.