Consumers slow to see benefits of new credit reporting
By Daniel Ross
Nearly a year after the introduction of the new comprehensive credit reporting system, Aussie banks are still proving sluggish to adopt it. That means consumers may need to keep up with the old system (which focuses on negative marks, such as defaults) and the new system (which takes into account positive and negative behaviour).
"We still have a negative reporting platform, even though they're trying hard to change that," says John Dickinson, director of Clean Credit, a credit repair service.
When Australia.CreditCards.Com reached out to banks to see if they were using the comprehensive credit reporting system, the result was a mixed bag. For instance, a representative for ANZ said in an emailed response to questions that the bank has already adopted the new system.
ME Bank, however, has yet to follow suit. James Haviland, ME Bank general manager of strategic risk, said in his emailed reply to questions that he expects full integration of the new system to occur in the near future.
Some banks were a little more vague in their responses: "NAB is committed to the Comprehensive Credit Reporting initiative," a spokesperson for NAB said in an email. "It is in the best interest of our customers and we will continue to work towards this with all necessary parties in the near future."
The best thing you can do for now: be aware of what's on your credit report, stay on top of your payments and avoid applying for (or keeping) more credit than you need.
Expect a mix of old, new
system requirements when applying for credit
"The industry is currently in a state of transition," Andy
Sheehan, managing director of the credit reporting agency
Experian, Australia and New Zealand, said in an emailed
response to questions. "Momentum is building and the
benefits of Comprehensive Credit Reporting will be realised
progressively. Early adopters are just now beginning to
contribute their data into the credit reporting system.
However, it's not a simple process and many providers will
remain reliant on the negative reporting system for some
time."
Data included in the new system
includes the:
*
dates accounts were opened and closed,
* current limit on those accounts,
* nature of the accounts and account
payment history (including missed payments), along with
information previously listed under the negative reporting
system, such as defaults and bankruptcies.
Lenders that have already adopted the new system will use an amalgamation of information between the old and new systems while assessing new credit applicants.
"This means that banks and other licensed lenders will continue to use negative information and will also have the option to utilise repayment history information," Sheehan said.
Steve Brown, director of consumer risk solutions at credit bureau Dun & Bradstreet, agrees that this transitional period will see a "blurring" between the old and new systems.
"We talk to our customers about a matrix approach, where they continue to use negative credit decision processes," Brown says. "But [consumers] will start to see a stepping in of comprehensive data. Lenders are bringing in comprehensive data, but they're not using it solely."
And he adds that those banks proving slower to adopt the system are generally the bigger institutions, as smaller banks find it quicker and easier to implement the necessary technological changes.
"For the big banks, these are very large projects because their systems are very often mainframe based, and they've had to invest in new pieces of technology to actually use the new comprehensive data," explains Brown. "On average, you've got 10 times the different fields of data being used in the comprehensive credit decision process over negative fields used in the old system."
Brown believes the shift to banks using the new system only could happen as soon as the end of the year. Sheehan, however, is more conservative.
"Momentum will continue to build throughout this year," he said, "and we expect that many financial institutions will have completed their transition to Comprehensive Credit Reporting by the end of 2016."
Putting your best foot forward
Juggling both systems is not unlike the steps needed to
maintain a generally good score. Just remember that if you
apply for credit, the lender likely has a more comprehensive
idea of your habits, but may not use the new system just
yet.
Under the old negative credit reporting system, it was best to avoid negative behaviour, such as bankruptcies and defaults. If you do have negative marks, be sure they're not mistakes (and correct them if they are).
However, "one of the most important things to remember about comprehensive credit reporting is that one missed payment doesn't equal a default," says Brown. "That's probably one of the biggest misunderstandings about comprehensive credit reporting."
Instead, the new system targets patterns of missed payments.
"If there is a pattern of consistently missing payments, or people are not missing one payment but two or three payments, that would tend to be a warning sign for a lender," Brown says.
Sheehan gives the following advice to help you maintain a good credit record no matter what systems are in place:
- Make payments on time. If it looks like you'll miss a payment, consider making a partial payment or contacting the credit provider to request extra time.
- Avoid applying for credit with multiple credit providers in a short period. By all means, shop around for the best deal, but only make a formal application once you choose the provider that is best for you.
- Consider consolidating your debts and only having as much credit as you really need. Behaviours such as applying for a third credit card to take advantage of a deal or taking out a personal loan to pay off a credit card can exacerbate the debt burden and may not create a positive picture from a lender's perspective.