Comprehensive Credit Reporting making it easier for banks to lend responsibly

Despite fears about the Royal Commission ‘credit crunch’, having a borrower’s financial position under a microscope may actually be benefiting both borrowers and lenders alike.

The credit crunch, caused by banks tightening up lending criteria after the Banking Royal Commission and pressure from regulating bodies like ASIC, may have prospective Aussie borrowers worried, particularly now that the new Comprehensive Credit Reporting (CCR) system means lenders can get a more complete view of an applicant’s financial situation.

But in actual fact, a report by credit bureau Experian found that CCR is making it easier for lenders to identify those struggling and therefore more responsibly offer credit to different types of borrowers. Which, according to Mozo Data Manager, Peter Marshall, can only be a good thing.

“In the past, it’s been obvious that loans have been given to people who haven’t necessarily been able to afford to pay them back in the longer term. Making sure borrowers don’t get in over their heads can only have good effects on their financial security,” he said.

The Experian survey of more than nine million Australian credit-card holders found that 7.0% of regional Australians have missed a credit card repayment in the past three months, compared to Australia’s most affluent group of borrowers, of which just 3.4% had missed a repayment.

Marshall said that missing payments on credit card debt was not only a realistic financial problem faced by Australian families every day, but that he hopes to see that number decline as lending practices become more responsible.

“Even if it means families making tougher financial decisions, it could have a greater effect on helping to avoid things like bankruptcy, which has put a lot of pressure on families in the past,” he said.

“With recommendations from the Royal Commission, ASIC will be cracking down on lenders to stick to the new guidelines. Depending on a borrower's risk status that could mean the difference between accessing credit or not, but essentially this is good news as it means borrowers will only access credit they can handle.”

What does this say about the impact of CCR?

CCR is allowing lenders to better assess the risk status of a loan applicant, whilst also filtering out those struggling to make repayments.

Experian’s Executive General Manager of Credit Services, Poli Konstantinidis said this allows lenders to prevent borrowers from getting into dangerous debt territory.

“Rather than demographic groups being assessed collectively, those consistently struggling to make their credit repayments are more easily identified and can be protected from getting into unmanageable levels of debt,” he said.

“As the system matures, lenders are increasingly able to get a 360-degree view of a person’s financial standing - from the credit card limit to whether they have been timely with loan repayments.”

What can borrowers do to maintain a low-risk credit status?

With all these changes, the importance of Australians to continuously keep on top of their financial situation is highlighted now more than ever.

Konstantinidis said first and foremost borrowers should get access to their credit report and check over for any changes, followed by maintaining a close eye on their repayments.

“My advice is to consistently keep track of your credit card repayments. If there has been a lapse in payment, consumers should quickly rectify this and ensure they are continuously up to date with future payments given lenders will now be looking back at the last 24 months of credit card activity,” he said.

If you’re concerned about your credit score and want to do something about it check out our guide to improving your credit score for a list of things you can do to get you in a better position.

Or if you’re one of the lucky Aussies set to escape the credit crunch more or less unscathed, head over to our credit card comparison table to check out the range.