When you apply for a loan or any other credit product, lenders check your ability to repay the loan before lending you money. Most lenders will check both your credit report and credit score, which allows them to determine your creditworthiness and the risk involved in giving you the loan. A good credit report and credit score will make it easier to qualify for mortgages and car loans, start a business, and, in some cases, secure a job. A bad report and score can lead to creditors being reluctant to lend to you or charging you higher interest rates and fat fees.
In the past, only negative borrowing patterns – like late payments and defaults – were listed in your credit report and could affect your credit score. However, since the introduction of Comprehensive Credit Reporting (CCR), positive borrowing patterns – like making your payments on time – can help you increase your credit score.
If you are planning to take out a loan or want to improve your credit score, you might be interested in finding out what your credit report contains and how your credit report is prepared. So, in this post, we will explain all the important attributes of a credit report and also tell you about the reporting system called CCR that is used by credit reporting agencies in Australia.
What is a credit score?
Your credit score sums up the information on your credit report into one number, designed to represent your credit risk, or the likelihood that you will pay your bills on time. The higher the score, the more creditworthy you’ll likely appear to reputable financial institutions, like banks.
Higher credit scores generally result in more favourable credit terms.
Credit scores are based on the information in your credit report at a point in time and can change throughout your life. They rely on a huge number of variables with different weightings in different circumstances to calculate a score that is a proven predictor of your credit risk and ability to repay a debt.
There are a number of different credit scores and scoring models. If you find out your credit score through a credit reporting agency like Equifax, you will receive a number between 0 to 1,200; while Experian and Illion provide a number between 0 to 1,000. The credit reporting agencies collect information from publicly available sources (such as court records and documents), as well as any information provided to them by the lenders they work with. These three credit reporting agencies use their own calculation to determine your credit score. Different credit events, or even lack of recent credit activity, are weighted differently by each agency, there can be discrepancies between your Equifax, Experian and Illion credit score, so it pays to check all three for any concerns.
What is Comprehensive Credit Reporting (CCR)?
CCR was introduced in Australia in 2014. The CCR system directs credit reporting agencies to collect and report comprehensive consumer credit information, including both positive and negative items, which lenders or credit providers can use to make informed lending decisions. This means that credit reporting agencies will not only record negative items, such as defaults, missed payments, and serious credit infringements, but also document positive credit behaviours – like making your payments on time – on your credit report.
Before the CCR, Australia operated under a negative reporting system that required credit reporting agencies to report only negative credit information and not positive information. But after the implementation of CCR, all credit information, such as your recent repayment history, types of credit products you have taken, credit limits on your credit accounts, account opening, and closure dates make part of your credit report. So, if you can demonstrate that you always repay your debt on time, it will be reported on your credit report, which can benefit you in securing further loans at better terms. The CCR provides credit providers with a broad picture of your credit history, allowing them to evaluate each borrower’s application thoroughly before approving the loan.
How can Comprehensive Credit Reporting affect your credit score?
The CCR and the reporting of positive credit data in your credit report can have an impact on your credit score. For example, if you repay your loan instalments on time, restrict applications for new loans, and deal with reputable credit providers, all of these positive credit behaviors can boost your credit score. In contrast, if you have a history of missed payments, frequent credit applications, and a high number of loans, your credit score will be negatively impacted by these actions. Ultimately, your credit score will determine whether or not you get approved for the loan. Your positive credit data can improve your credit score and help you secure loans at better terms than those with low credit scores.
Benefits of Comprehensive Credit Reporting
With the introduction of CCR, you now have the incentive to show positive credit behavior as it is recorded on your credit report and improves your credit history. Lenders can get a complete picture of borrowers past behaviour with credit, and they can even consider lending to those who had a bad history of managing credit but can demonstrate more recently good credit behavior. So, even if you had a bad credit history, you can improve your chances of getting new loans due to CCR.
What is on a credit report?
Now that you know about the CCR being used by the credit reporting agencies, it is important that you learn what a typical credit report contains. This will help you build a good credit score or improve it if your existing credit score is poor. Here is what a typical credit report has:
Personal Information:
Your personal information, such as your name, gender, date of birth, residential address, employer, etc.
Credit Score and Rating:
Your credit score and the associated rating. For example, if you are checking your credit report from Experian, a credit score in the range of 700-799 would be rated as Very Good.
Credit Products:
The credit products (credit cards, personal loans) you have taken over the past two years. Other data, such as credit providers, credit limit, and opening and closing dates of these accounts, are also mentioned along with the credit products.
Repayment History:
Repayment history, such as repayment amount, due dates, frequency of on-time and overdue payments, etc.
Financial Hardship Arrangements:
If you have entered into a hardship arrangement with a credit provider for a credit product, it will appear on your credit report on the month the arrangement was entered into. The listing stays on your report for 12 months from the entry date and is deleted afterwards.
Defaults:
Defaults on credit products, such as credit cards, personal loans, or utility bills, are shown on the credit report. For a default to appear on your credit report, the amount owed must be greater than $150; the amount must be overdue by 60 or more days, and you must have been informed in writing by the credit provider about the missed payment.
Credit Applications:
Credit applications you have submitted to different lenders, the total amount you have borrowed, and any loan guarantees you’ve given also appear on your credit report.
Bankruptcy and Debt Agreements:
Bankruptcies, personal insolvency agreements, debt agreements, and court judgements against you also appear on your credit report.
Credit Enquiries:
Credit enquiries made by credit providers for evaluating your profile for approving new loans also appear on your report.
Final Thoughts
Comprehensive Credit Reporting is equally beneficial for both borrowers and lenders. Positive credit behaviors, such as good repayment history and infrequent credit requests, are recorded on credit reports, which allows borrowers with poor credit history to improve their credit rating. On the other hand, lenders get a chance to view a complete picture of the borrowers, not just the negative items. This allows lenders to consider even those borrowers who had a bad credit history but have recently started to develop positive credit behavior.
