New Privacy and Comprehensive Credit Reporting laws came in effect yesterday, but according to research conducted by Experian Credit Services Australia, 74% of consumers are not aware of these changes.
Consumers had better do some homework, because Experian reckons that the “new legislation will deliver the most significant reform to the way credit is granted in Australia of the past 20 years.”
The Office of the Australian Information Commissioner has a handy guide to what it all means and how the changes will occur but the key part here for consumers is the comprehensive nature of the changes.
Page 3 explains that everything about your loan or credit card, your payment terms, your payment history – including the day the payment was due and the day it was paid – will be known to lenders in the future.
Now of course some argue this is positive for those who pay on time. Sure, but even if you are a few days late on your payment and never go into arrears or default future lenders may still mark you down for late payments.
In the past lenders did not report payments until they went into arrears or default now all payments, on time or otherwise will be apparent.
Andy Sheehan, Managing Director of Experian says “comprehensive credit reporting is to enable more responsible lending among credit providers. Responsible lending has many different parameters to it, such as whether the consumer is under financial stress or hardship.”
So a lender will have access to more, better and more timely data about your borrowing and repayment history so that financial pressure isn’t added to by more and bigger loans.
The ABC reported yesterday that Kat Lane of the New South Wales Consumer Credit Legal Centre noted:
the problem is for consumers is that this isn’t necessarily a good thing for them…Australians who are just struggling with paying their everyday bills, if they’re more than five days late on their credit card, their home loan or their personal loan, then suddenly they’re going to have a mark on their credit report
As a banker for more than a quarter of a century my guess is that can only mean one thing – differential pricing for loans.
That’s not so bad and Andy Sheehan says it means that “consumers with a good credit profile, comprehensive credit reporting is likely to give them more opportunity to negotiate with their provider for the terms they want.”
But whereas now lenders and rates are largely differentiated along good credit/bad credit lines, the market could now become much more nuanced in the future.
Being a few days late on a payment might cost you a few extra basis points on your home loan or a half a percent on your credit card.
And if you get caught in a cycle where you are late all the time, even if you never have a default, then you just might be viewed as no longer as a prime borrower but a much higher risk. And with that comes higher rates.
But there’s no need to be afraid according to Experian’s Sheehan, who gave Business Insider a ready reckoner of tips for consumers under the new rules:
- Become familiar with your credit report and check it annually – request your history, understand your profile and correct any errors
- Consider the credit that you need – don’t take too much credit and consider having a strong primary banking relationship
- Beware of default payments – don’t let you payments go into default (greater than 60 days late) as this will be a balck mark on you profile
- Seek help if you’re having trouble with your debts – the lender has no interest in you defaulting and so seek their help first.
Spread the word, so your friends don’t get a rude shock next time they apply online or head into their bank manager for a loan.