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A Guide On Comprehensive Credit Reporting (CCR)
●June 9, 2021●4 minute read
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When comprehensive credit reporting (CCR) was introduced in March 2014, it meant big changes for our credit scores and how they are calculated. It was mandated by the Australian Government, with all big four banks required to participate by 1 July 2018.
This new way of credit reporting was proposed to provide creditors access to a “deeper, richer set of data” when assessing a borrower’s credit position.
In this guide, we give a quick rundown of what comprehensive credit reporting is including the potential pros and cons for borrowers.
What is negative credit reporting?
Before comprehensive credit reporting was introduced, Australia used a negative credit reporting system. This meant credit reporting agencies only recorded negative credit information in your credit file. This included bankruptcies, court judgements, defaults, and missed payments. As a result, when people applied for credit including personal loans or home loans, lenders could only see the negative information listed in their credit report. This influenced whether a loan was approved or not.
One of the downsides of negative credit reporting is that it doesn’t give a holistic picture of a person’s borrowing history. It doesn’t include detailed information about when a person has successfully managed their credit obligations by paying off loans on time. Instead, only negative information is listed.
What is comprehensive credit reporting?
Comprehensive credit reporting, also known as positive credit reporting, is a new reporting system aimed to make it easier for potential lenders to know the true borrowing history of an applicant.
Alongside the information a credit report previously contained, it can now include positive information such as:
- Current credit accounts a customer holds;
- Open and closed accounts;
- Credit limits;
- Up to 36 months of repayment history (including frequency of repayments and whether they were made on time);
- Type of credit applied for.
After comprehensive credit reporting was introduced in 2014, there was a slow uptake of the system. As a result, the Government imposed a deadline for major lenders. The big four banks had to provide 50% of their credit data to credit reporting bureaus by September 2018, and 100% by September 2019. However, it is not mandatory for other creditors to provide comprehensive credit data, though they can choose to do so.
Pros and cons of comprehensive credit reporting
There are both potential benefits and drawbacks of comprehensive credit reporting for creditors and consumers. We give a rundown of some of these pros and cons below:
- All positive borrowing behaviour is listed, which can offset previous negative credit information such as missed payments.
- People with a less extensive credit history now have more information on their credit report. This can make it easier for lenders to decide whether to lend to them.
- The impact of one negative event, such as missing a payment, may not be as drastic as it was with negative credit reporting, if it is offset by positive factors.
- A person’s credit score can be viewed as a more accurate picture of their borrowing behaviour.
- Lenders can more easily meet their responsible lending obligations by identifying financial issues much earlier, which could avoid putting people into financial distress.
- People with strong repayment histories and high credit scores could benefit from the tailoring of credit products, as they could be offered better interest rates.
- The credit provider doesn’t need to make additional enquiries about recent credit inquiries on a credit file to see if a client received a loan. Meaning, applicable repayments that need to be taken into consideration are already listed on the credit report.
- A person’s credit score can go down if, for example, they have multiple credit cards they often pay off late.
- Lenders can tailor products based on how risky they perceive a borrower to be, meaning you could be charged more interest.
- Your credit card limit is listed on your credit report, but not how much you spend. Meaning, if you have a credit card with a $5,000 limit but only spend up to $500, this information is not listed and you could seem more risky as a borrower than you are.
- Not all lenders are required to use CCR, meaning if you have multiple credit providers, credit reporting companies could be receiving inconsistent credit information.
A quick summary
Overall, while there are potential drawbacks of comprehensive credit reporting, it can offer lenders a more precise, accurate picture of a person’s financial situation. A 2015 report by KPMG stated that the exchange of credit data between financial institutions is vital for their risk management. Ultimately, it is a better system, as it can assist lenders to more easily comply with responsible lending obligations. With a more comprehensive history of a person’s borrowing habits, this can avoid creating debts that cannot be reasonably managed.
The switch to a positive credit reporting system also brings Australia more in line with the US and the UK markets, both of which use comprehensive credit reporting systems. New Zealand also uses a comprehensive credit reporting system, which was introduced two years before Australia in 2012.
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Written by Rachel Horan
Rachel Horan is a Content Writer for Jacaranda Finance. Rachel has previously produced content for Brisbane City Council, Black & White Cabs, and Clubs Queensland. She has a Bachelor of Mass Communication with Distinction from the Queensland University of Technology.