How changes to credit reporting could affect your credit score

Tuesday 21 March 2017

Article by Roisin Kelly-Goldsmith

If you've ever applied for a credit card or home loan, you'll probably be more than aware just how important the health of your credit report is, as it largely determines whether you'll be approved.

But did you know changes are on their way that could affect your credit score? In Australia, we currently use what is coined a "negative" credit reporting model. This means that the banks can only look at what lines of credit you have available to you, the loans you have been rejected for and whether you've defaulted on them or fallen into bankruptcy.

However, changes to the Privacy Act in 2014, have meant that credit reporting bodies have been collecting more detailed information like your credit repayment history over the last 24 months. And according to credit rating bureau Experian, this data will soon be used by Australian banks to determine how credit-worthy you are.  

What the banks will be able to see: 

  • The products you’ve applied for in the past
  • The dates you’ve opened accounts and closed them
  • The amount you have borrowed
  • When you have been rejected for a product
  • Your repayment habits, such as whether you’ve paid your bills in full and on time, taken repayment holidays or made extra repayments

What does this mean for you?

If you're the type of borrower who always pays your bills on time and in full, then the changes should work in your favour. You could even potentially be rewarded with lower rates, as some peer to peer lenders and challenger brands offer tier based rates based on your credit score.

But as we all know, there may come one time or another where you have missed a payment or only made a partial payment and that's where the new credit reporting system could work against you and potentially affect your credit score.

If that sounds like you, the good news is at the time of writing banks still have limited access to your financial situation, so there is still time to prepare before the industry rolls over from a negative to a positive credit reporting model.

4 ways to maintain a strong credit profile

1. Know your credit score. Before applying for a credit card or personal loan, it’s a wise idea to download a free copy of your credit report to check that all of your details are correct and inform your credit report provider if you find anything amiss.

2. Set up automatic payments. Even highly organised borrowers can slip up and miss a repayment due date, so this tip applies to all. Opt in for direct debits, so you’ll wave goodbye to late payment fees and keep your credit report looking good too.

3. Maintain a conservative level of debt. As a rule of thumb, it’s a good idea to keep your credit card balance below 30% of your limit, as this shows that you’re not much of a risk taker.

4. Don’t be a serial applicant. A major reason why you shouldn’t make multiple applications is that it will appear on your credit history. Not that it’s incriminating, but why give your bank a sliver of doubt when you apply for that first mortgage?

Wondering what your credit score says about you? We’ve broken it down, so you can work out exactly where you stand.

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