When comprehensive credit reporting (or CCR) was introduced in July 2018, many people thought it was going to be a big win for the little guys, a way for individuals to wrest back power from the big banks when it came to getting a better deal. People thought that with an increase in the amount of good or positive data surrounding their credit commitments, they would have a significant bargaining tool when it came to getting a better deal from lenders. Did it turn out that way? Probably not, but before we get stuck into that, what is CCR?
Comprehensive credit reporting is exactly that, a comprehensive and more involved assessment of someone’s credit history. In the past when you applied for credit in Australia, the only information that was usually shared between banks that impacted your credit score was the really negative stuff, things like defaults, or applying for too many loans at once, often seen as a sign of desperation. CCR was introduced so that more of the good data would be shared, not just the negative stuff. The idea was that when you were looking for a new home loan or credit card, you’d be able to point to your history of responsibly paying down your debts, and your new lender would give you a sweet deal, knowing you weren’t too likely to cause them grief. You’d be a nice low-maintenance customer to have on the books.
In theory, it sounds great. Australians love the idea that they’re getting a good deal, especially if they’re able to thumb their nose at a large financial institution in the process. In reality, it’s possible that CCR will give the big banks even more of the kind of data that is great for them, and bad for you.
For example, let’s say around 5 years ago you got a credit card. On your credit report, the lender you approached for your credit card noted that you had made an enquiry about it, but never actually whether you took them up on their offer. Now provided you never actually defaulted on your card repayments (haven’t paid within 60 days), no other information was shared between that lender and other financial institutions.
Fast forward to now, and the picture starts to change. In the same scenario, there will likely be more information regarding whether you just made an enquiry (some people just like window shopping, after all), or whether you did actually accept the card. In addition, there’s more information shared about how you make your repayments. Also whether you just pay the minimum amount and more importantly, if you’re ever late making them (more than 14 days late). Many people are often a couple of weeks late in making their repayments, and this information is now going to be shared and may likely make things more difficult for you in the process. Banks are notoriously wary of late payers, as you may have found if you’ve made a late payment to your current lender, and then re-approached them years later for some other product or loan.
The above sounds a little bit alarmist, and conspiracy theory-esque no doubt. I certainly don’t want to come across as just bank bashing for the sake of it, because it’s been done to death and it doesn’t provide much of a challenge anyway. It’s too easy to do. Arguments that focus purely on the profits that banks make fall short of the mark, because the counter-argument is, would you want to bank with an institution that doesn’t know how to handle and make money? Compared to many brokers I’m fairly happy with our banking system in general (there’s obvious exceptions). However, when it comes to CCR and what it means for the consumer, we’ve seen banks use this kind of thing to their advantage in the past.
When a 30% interest only cap was imposed upon the banks by the powers that be, the banks decided to increase the interest rate on these loans to actively discourage people choosing these loan types rather than flat out declining people (although this happened too). Now that this cap has been recently lifted, it stands to reason that the rates on these types of loans will lower once again, won’t it? I wouldn’t hold your breath.
In the same vein, the idea that your good data showing you as a responsible borrower is massively going to help you secure a lower interest rate on a loan is pretty hopeful at best. Many banks may just use it as an opportunity to put you in a higher risk category, along with the corresponding penalty interest rate increase.
This consumer credit information that the big 4 banks have kept close to their chest previously is due to be 100% released and shared with other banks by July 2019, having been about 50% released by the same time in 2018. I’m an optimist, and as a mortgage broker especially I’d love to be able to give someone the news that they were eligible for a super cheap home loan that wouldn’t have been possible before CCR. But will I ever get to make that phone call?
I hope so, but probably not.