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From the 12th of March 2014, The new Comprehensive Credit reporting will make loan qualification harder for every Australian who applies for consumer credit – home loan, credit card, store card, car finances, personal loans or a mobile phone plan or an electricity/ultilities account.

What does this mean for your average family?

The payment of all your bills on time is crucial!!!

Before this new code, the credit agencies in Australia have collected consumer and business risk information in the form of a credit file. These files are then given to credit providers to see if you are a good or a bad risk when having a look at your loan.

The new code now includes your “repayment history” i.e. do you pay your debts and accounts on time. This now is included in your credit file and will be balanced by the standard process the banks use for proof of income when you apply for a new loan.Borrowers with good credit history (with repayments made on time) can expect lower interest rates and better credit offers. Borrowers with a poor credit history (with missed repayments) can expect higher interest rates and credit rejection.

What’s interesting is that credit providers can access the following;

  • 24 month repayment history starting from December 2012
  • details of any credit enquiries made and credit refusals
  • For any credit issued, i.e. credit card, or a home loan,
  1. -       the due dates for payment,
  2. -       whether a payment has been made,
  3. -       if the due date was missed,
  4. -       current limit on the credit account
  5. -       name of the credit provider
  6. -       dates and type of credit account opened
  • Any court summons and court writs, court judgments kept for 5 years
  • Credit defaults of $150 or more (if 60 days overdue) to be kept for 5 years
  • Bankruptcy orders/debt agreements and serious defaults
  • Account status and repayment history to be kept for 24 months

won’t bore you all with the legislation and detailed information about the differences. If you want to know more about where to look, here is the Act: “Privacy Amendment (Enhancing Privacy rotection) Act 2012 Cwth.

The key thing is that after the 12th of March every person will have a credit score based on everyone’s repayment history. This transition according to the experts will take until 2015 for it to be completed. In the US, it is called the FICO Score. This tells the bank and other credit providers a score and this is used to predict credit defaults. Obviously, if your score is bad, the less chance you have to get credit and if you get it, the higher the interest rate. And visa versa.

This is good to know when you are thinking for applying for a loan. Try and pay your bills on time, and it may help to get a better deal at the bank’s table.

Cheers,
James