Australia’s new comprehensive credit reporting (CCR) system has kicked off in earnest, with the confirmation that the big banks are now contributing data on their millions of customers. That matters for home buyers because your credit score can go a long way towards determining eligibility for a home loan.
By way of background, your credit report is a record of how well you’ve managed debt in the past, and it’s compiled and maintained by credit reporting bodies like Equifax. Previously, the old system of credit reporting focused on negative events – mainly non-payment of debts. These days, credit reports have widened their scope to include positive events such as paying bills on time, giving lenders a better all-round view of a loan applicant’s money management.
Moses Samaha, Executive General Manager at Equifax, describes the new system as “a generational change” adding, “The big banks will be contributing more to the credit information on their customers. For lenders that means a lot more information will be available about borrowers than in the past.”
Samaha says, “Before the new system came on board, lending decisions could be based on the negative information contained in a credit report. That meant borrowers who had experienced a negative event, such as not paying a credit card bill, had to work hard to clean up their track record.”
Under the new system borrowers have greater opportunities to show a turnaround in their behaviour by staying on top of money matters. “It’s always a good idea to pay bills on time,” says Samaha. “But it’s even more important now as this ‘good’ behaviour can be recorded on your credit file, and that’s especially helpful for borrowers who’ve had an issue with non-payment in the past.”
There are other reasons to keep your credit record in great shape. Samaha explains, “Over the last year or two, a number of regulatory and macroeconomic developments have made lenders more cautious about who they lend to. We’re seeing lenders being far more prudent and tightening up their lending policies.”
When it comes to home loan approval, Samaha points out that lenders look at a variety of criteria. But he cautions, “A borrower’s credit rating is definitely part of the mix”. That makes it worth keeping your credit record squeaky clean because “anything that can help your financial standing goes a long way.”
What can you do to keep your credit rating in good health? Samaha recommends, “Stay on top of debt repayments, and make sure you are paying bills on time. Think about using direct debits so that bills are automatically paid on the due date. This is especially worthwhile if you’ve had non-payments in the past. Check your credit report from time to time too, and if you see something you disagree with, put the wheels in motion to get it corrected.”
Talk to your Aussie Broker for a better idea of how your credit score could impact your ability to secure home loan.
