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‘Positive data’ could change mortgage approvals

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New rules are being fast-tracked by the federal government to provide lenders with greater access to “positive data” about borrowers. By the end of this year, banks will be allowed to share more data about borrowers amongst themselves, and borrowers will be assessed on how well they have paid loans over the last two years.

“The government’s move to fast-track positive data sharing will mean more Australian borrowers will see the benefits of a fairer system much sooner,” Suzanne Steele, managing director of Experian, told SCHWARTZWILLIAMS.

The change, which was recommended by the Productivity Commission, is especially relevant to those seeking approval for home loans.

Currently, when borrowers apply for credit, lenders ask for permission to access credit reports to help them determine if these borrowers will be able to repay their loans.

The new rules will mean that lenders will be able to see positive data as well. For example, lenders will be able to see how well borrowers have repaid credit cards, mortgages, and personal loans over the last 24 months. The data will also reveal how many credit accounts someone has, as well as how much credit they have in total.

The changes could prove beneficial for prospective first-home buyers with good credit histories, as it could make it easier for them to get approved for finance.

“Previously they may have been declined due to a lack of insight into the way they handle their finances,” Steele said.

Credit scores could change dramatically

Aussie borrowers are likely to see their credit scores increase or decrease in the coming weeks and months, according to Steele.

“New data about how many credit accounts [borrowers] have open [as well as their] combined credit limits … is factored into their scores for the first time,” she said.

The new data is likely to have far-reaching impact on a range of credit decisions, including loan approvals and declines, changes in interest rates, and changes in lending limits.

Industry research suggests that approximately 40% of decisions about credit applications could change, in comparison to when only negative data was shared. Meanwhile, overall approval rates from banks are tipped to increase by 10-15%, and the share of bad loans could fall by as much as 45% when positive data is included in credit decisions.

“Positive data sharing will also assist others to avoid entering into unmanageable levels of debt and getting into financial difficulty,” Steele said.

Borrowers and those hoping to have their loans approved should regularly check their credit scores to ensure that new positive data is being factored in.

“The best thing home hunters can do is check their credit report before applying for a mortgage, something which, worryingly, our research shows seven in ten Australians admit to never having done. Consumers can check their score at any time, free of charge.”
 

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