​How will changes to the credit reporting system affect you?

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Important changes to the Australian Privacy Laws will soon mean that lenders will have access to more information than ever before.

At the moment, Australia operates under a negative credit reporting system. This means that only credit enquiries and defaults are recorded on your credit report. The information below is what lenders currently have access to when you apply for a home loan.
  • A payment default of $100 or more that is 60 days or more overdue
  • A clearout – If you owe money, but the credit provider was unable to make contact after several attempts
  • A bankruptcy order within the last seven years
  • Details of credit applications made in the last five years.

However, from the 12th March 2014, the new positive credit reporting system will be implemented and has a purpose of providing lenders with more information about a borrower’s financial position. Under this new system, lenders will be able to see the past 24 months of your repayments for financial commitments such as personal loans, car loans and credit cards (going back to December 2012).

If you carefully manage your finances and always meet repayments on time, this may be great news for you as lenders will now be able to see what a model borrower you are and may even be able to offer you a more competitive interest rate. However, if you regularly miss bill deadlines, even if it is a couple of days late, it could jeopardise your chances of getting a competitive home loan or even being approved. 

If you know that your repayment history is not perfect, don’t throw in the towel. There is still time to improve your situation. Take a look at the tips below:

Reduce your debt: The less debt you have, the better chance you will have at increasing your borrowing power. If you have any debt outstanding, make an effort to pay these off as soon as possible. Even though having a default on your credit report is not good, it is less detrimental to have a paid default rather than an unpaid default. 

Meet repayment deadlines: No matter what your past financial situation was like, now is the time to maintain a strong repayment history. Lenders need to see that you are able to handle the responsibility of repaying a home loan. So, even if you have not been attentive in the past, you can show lenders that you have changed your attitude by meeting all of your repayment deadlines from now on. 

Don’t take on too much debt: You could get into serious financial trouble if you have too many financial commitments. Pay particular attention to interest free deals as they can often revert back to a high interest rate after the interest free period ends. Would you be able to handle the repayments then?

Although this new credit reporting system has a purpose of providing lender’s with more information, it can be extremely beneficial for you, the borrower. However, you will need to take the time and make the effort to maintain a strong repayment history to reap the rewards.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Anouska Linz

Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.

For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.

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