RateSetter CEO: Comprehensive credit reporting and open banking to help Australia play catch-up
Article by Tom Watson
For many Australians hearing the words ‘credit history’ may well elicit a shudder down their spine - especially if they’re looking at taking out a finance option such as a personal loan, credit card or home loan. But in just under four months that could well change, with the impending implementation of mandatory Comprehensive Credit Reporting (CCR).
From July 1, the big four banks will be required to have at least 50% of their credit data - both positive and negative - available to be shared, which Daniel Foggo, Australian CEO of peer-to-peer lender RateSetter, suggests will help Australia catch up to the rest of the world.
“….most Australians wouldn’t know it, but we’re towards the bottom of the developed world when it comes to the ability of a consumer to secure cost-effective finance,” he wrote in a recent article.
“The root cause though distills down to Australians not having the ability to leverage their past good credit behaviour to secure lower cost finance. In most developed countries, if a consumer has been making credit card, personal loan and utility payments on time, they can leverage their good behaviour, and benefit from having access to lower cost finance options.”
What is Comprehensive Credit Reporting?
Before 2014, lenders only had access to a consumers negative credit history and, as a result, could base their assessment of a potential applicant on whether or not they had any blemishes on their record.
Since then, a number of smaller lenders (including RateSetter) have been voluntarily sharing ‘comprehensive data’ with credit bureaus - which act as information middlemen between lenders.
And as of July 1 this year, the big four will be forced to adopt the practice, with the banks required to be ready to share 100% of their credit data by July 1, 2019.
Under the new comprehensive credit reporting system banks and lenders will thus have a greater picture of an individual's credit history, which will now include positive elements such as how a borrower has managed their credit and repayments in the past.
How could CCR help customers grab a better deal?
Because an individual's positive history will now be required to be shared between lenders, borrowers with good credit history could be rewarded when they go to apply for a loan by securing a better rate or deal with their provider.
A number of countries, including the United Kingdom and United States, having already adopted similar systems and tailored rates are already being employed by a number of personal loan lenders in Australia.
On the flip side, Mozo Product Data Manager Peter Marshall warned that Australians with blemishes on their credit history may end up paying a premium for their financial products when the measures come into practice.
“Positive credit reporting could well be great for borrowers who have excellent credit history, but anyone with a mark on their record could expect to be paying higher rates in the future,” he said.
Clearer data, greater competition
In the opinion of Foggo, Australia may be behind the eight ball when it comes to comprehensive credit reporting, but the RateSetter CEO remained hopeful that the government's commitment to open banking could complement CCR, giving consumers greater control over their data and access to more competitive rates.
“The adoption of open banking will transform the way customers use and benefit from their own data, and takes the benefits of CCR several steps further,“ he wrote.
“Australian consumers will enjoy the benefits of real competition, both between and against the banks. Quickly we will move to an environment where, when thinking of obtaining finance, our first thought will be 'where can I obtain the best value’, not 'where is our nearest bank branch’.”
Interested in finding out how credit history works before CCR is implemented? Check out our handy guide for a comprehensive run through and some useful tips. Otherwise if you’re ready to grab a loan that rewards borrowers with excellent credit history, check out some of these award-winning offers.