Why it's now more important than ever to pay your debts on time

In 2014, the government introduced comprehensive credit reporting to Australia. This type of credit reporting has been used in the US and UK for many years. It is expected to help credit providers make better decisions about who they lend money to by ensuring they do not provide finance that is unsuitable because of:

• Poor debts
• Poor credit history
• Inability to repay
• Not meeting the client’s requirements and objectives

When someone applies for any type of finance, credit providers decide fairly quickly whether to approve the loan. They do this based on many factors – particularly the information in the application form.

Application forms tend to ask for information about a client’s current debt position and financial commitments. In the past, it has been up to the customer to disclose this information accurately, with the bank unable to cross-check this information. Now, though, comprehensive credit reporting overcomes this inability to cross-check, and immediately tells the bank what finance the customer has had and how responsible they’ve been at repaying it.

How comprehensive credit reporting works

Under comprehensive credit reporting, banks and other lenders share the account repayment history information of their customers with credit reporting companies. The sort of information that is shared includes:

• The name of the company the debt is held with
• The type of the account
• The total credit limit and the amount currently outstanding
• When the account was opened and closed (if relevant)
• The number of days the account is in arrears, and which months the account was more than 14 days in arrears

• 1 means the payment is 1-29 days late
• 2 means 30-59 days late
• 3 means 60-89 days late
• 4 means 90-119 days late
• 5 means 120-149 days late
• 6 means 150-179 days late
• X means 180+ days late

Once a payment is so late that a ‘3’ appears, credit providers can begin the process of placing a default listing or judgment on the individual’s credit file. However, some credit providers will wait until later to list a default.

How comprehensive credit reporting affects you

Comprehensive credit reporting was presented as something that would benefit Australians with a good credit history who wanted to take out new loans. The idea was they would be rewarded with lower interest rates and faster approvals, compared to customers with worse credit histories. However, as Australians are in more debt than ever and one in six are reported to be behind in credit card repayments, it now appears that this information sharing could lead to huge negative consequences for Australian consumers and the finance industry.

Initially, comprehensive credit reporting was voluntary. Few lenders took part. The big four banks avoided it, citing reporting costs. However, since 1 July 2018, the big banks and all other credit providers have been compelled to share their information, thus giving all lenders an even playing field.

Equifax have said that at present only 13 per cent of their 30 million credit files have repayment history information included in them. By 2019, they are expecting that 92 per cent of credit files will have repayment information included.

With all this new information on your credit file, it is now more important than ever to pay all your consumer debt on time. If you ever have any doubt about making a repayment on time, you should call your financial service provider’s hardship department and enter an official hardship variation.

While this may prevent you from being able to borrow again from that lender in the future, it will not impact your credit file. It will also immunise you from having negative account payment history information listed against you, as long as you keep right up to date with your new repayment arrangement under the hardship variation. Therefore, you will still be able to borrow from other credit providers when the time is right.

Dr Merrilyn Mansfield is the lead adjudicator and researcher forPrinceville Credit Advocates. She is fascinated with the consumer laws that relate to credit reporting and in advocating for a consumer’s right to a correct credit report. She is in her final year of law. For more information email[email protected]or call 1300 93 63 63.

Carmel Mansfield is a credit file specialist at Princeville Credit Advocates, currently working with clients to improve their credit score. She has also worked in complex case management at Princeville since 2010. She holds an economics degree from the University of Sydney and is a passionate consumer advocate.

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