Comprehensive Credit Reporting (CCR) was only introduced in Australia in 2014, and since that time, participation has been voluntary. It is still a very small percentage of credit accounts that are being reported, which is why there has recently been a push to make CCR mandatory.
So, what does mandatory CCR mean for consumers? Overall, it should be beneficial. Good customers will have the opportunity for better deals, there will be increased competition between lenders, and small credit infractions won’t be as detrimental since they will be balanced by positive reporting.
In the past, credit reporting in Australia only provided negative information. With such a limited amount of information to go on, most customers have been charged the same rate for personal loans. Adding positive credit information will give lenders a more comprehensive picture of their customer, and good customers will be rewarded with better deals.
A more complete assessment of customers will allow lenders to use risk-based pricing—basically safer borrowers will see lower interest rates. This helps the customer in two ways. First, if you have good credit history, you’ll be able to take this information and either demand a better deal or shop around until you find one. Second, being able to more accurately assess risk will stimulate competition in lending. More conclusive risk assessments won’t help just the traditional lenders, but will allow for new and smaller lenders (including fintechs) to compete. Increased lending competition means better deals and more choices for the consumer.
For borrowers with a few dings on their credit, CCR could be a major improvement. Whereas previously lenders only saw these customers’ credit hits, now they will also be able to see a recent history of repayments. Basically, a hit to your credit won’t hurt as badly as before since it is balanced with positive information.
A 2016 study by Veda (the largest credit-reporting agency in Australia and New Zealand) found that already 930,000 Australians who might have been denied credit from mainstream lenders before CCR now had access to credit thanks to CCR. They also found that the average credit score for an individual increased once CCR data was incorporated.
Overall, a mandated CCR looks to be positive overall for consumers. There will be better access to finance for both households and small businesses. Those with better credit will be able to reap the rewards. Increased lending competition will provide borrowers with more choices.
It’s clear that CCR not only has an impact on borrowers. The lending community will see major shifts based on a CCR mandate. My next post will dig into exactly what changes can be expected due to mandatory Comprehensive Credit Reporting.
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