All big four banks now sharing customers’ credit information: what this means for Aussie home buyers
If you’re looking to purchase property or refinance your home loan, you may have to start worrying a lot more about missing the occasional repayment on your credit card.
All of Australia’s big banks are now sharing their customers’ entire loan and repayment history with credit bureaus, with the Commonwealth Bank being the last of the four to go live with its comprehensive credit data on Tuesday.
This new system gives lenders access to a greater wealth of information about a borrower, including any liabilities (credit cards, personal loans, mortgages) with other banks, which previously relied on the borrower’s disclosure in their home loan application.
Mozo’s Property Expert, Steve Jovcevski, warned that the move towards comprehensive credit reporting could hurt Aussie home buyers if lenders aren’t careful about how they use this additional information.
“I’m concerned that with comprehensive credit reporting, small misdemeanours or mistakes like forgetting to make a repayment here or there could be used against the customer when they try to take out a home loan or refinance,” Jovcevski said.
“This could be a little unfair, because sometimes people miss a repayment for all sorts of reasons, and it’s not necessarily because they can’t afford it, or because they’re habitually unreliable.”
The winners and losers of comprehensive credit reporting
While comprehensive credit reporting may assist immigrants and young people in gaining access to credit because they’ll be able to build up a positive credit report through good behaviour (e.g. making all their repayments on time), Jovcevski believes “the negatives outweigh the positives”.
In particular, the banks could get tougher when judging a customer’s credit worthiness, making it harder for low income earners and first time buyers in tight financial spots to have their home loan applications approved.
“I think this new system is going to be a negative for the property market which is already very fragile,” Jovcevski said.
“That’s why the banks need to make sure they don’t overreact to this new information and take it with a grain of salt.”
So what does ‘not overreacting’ look like? According to Jovcevski, one example could be that lenders avoid rejecting a customer just because they’ve missed a small repayment and instead take into account their behaviour afterwards - for instance, whether or not they paid back the owed amount a few days later.
What home buyers should now watch out for
Comprehensive credit reporting means Aussie borrowers will have to keep a closer eye on their undeclared liabilities and their repayment history:
The danger with declaring your liabilities in your home loan application is that many of us may not know what a ‘liability’ is.
You might think, for example, that you only have to declare the credit card debt that you already have, but lenders want to know about the debt you could potentially have. So if you’ve been keeping a ‘rainy day’ plastic with a $3,000 credit limit inside your wallet, your bank would consider that as $3,000 of potential debt or liability even if you haven’t spent any of the credit.
With comprehensive credit reporting in place, any of those liabilities that you didn’t declare will come to the surface.
So it’s a good idea to double check your credit limits. That way, you won’t have any nasty surprises waiting for you around the corner when you apply for a mortgage or refinance.
Since lenders can also see your repayment history under this new system, Jovcevski recommended making sure you’ve met every monthly repayment on time for at least 3 to 6 months before taking out a home loan or refinancing.
“Now it’s not only a black mark from a default next to your name that you need to watch out for, but also missed payments for any credit cards or personal loans,” Jovcevski said.
Ready to buy a house or get your hands on a more competitive mortgage rate? Head over to our home loans comparison table to find a deal that suits you.
Or if you’re concerned about what comprehensive credit reporting means for you and want to talk to an expert about it, you could use our home loan negotiator service.