Comprehensive Credit Reporting - What it Means for You and Your Clients
There has never been a more important time to review and discuss your clients’ credit scores and credit health. Although it may seem like this is just another thing to add into the pot for an Annual Review, there have been many changes which may impact your clients and their overall financial health.
Credit Reporting and Credit Score
There are 3 credit reporting bureaus in Australia:-
- Equifax
- Experion
- Illion
Each collect your personal and financial data and provide scores and credit reports.
Previously the collected information was limited to :
- Basic personal information - name, address, DOB, employer
- Loans you applied for in the last 5 years.
- Loans or accounts for which you are more than 60 days overdue - Defaults
- Court Judgements and Writs
- Bankruptcy and Part 9
Over the last few years, legislation changes have pushed all banks and lenders to participate in the CCR and to provide much more detailed financial information to the credit bureaus.
This increased reporting has meant that over 97% of the general population has had their credit score changed.
So let’s look at the good, the bad and for some, the ugly impacts this is having.
Repayment Reporting
For any open or closed credit accounts, the lenders have reported a repayment score monthly on the account, with data held for 2 years.
- Good - 0 - you have paid your account on time
- Bad - 1 - 6 - you are 0 -179 days overdue. (there is a 14 day grace )
- Ugly - X - Default
- C - account closed
There is a significant weighting placed on the importance of prompt repayment within your credit score calculation.
In fact, Your score can drop by up to 20% on a single missed repayment (even on a credit card you hardly use) and that becomes to up to a 40% drop in the credit score of people who miss three or more repayments consecutively over 3 months.
Therefore, establishing direct debits and implementing a good account management system is a simple yet effective way to keep your score high.
Open and Closed Accounts
The credit report contains details of both current, open credit accounts and closed accounts.
This transparent reporting on all borrowers is simplifying and assisting the lending process - minimising mistakes and non-disclosures.
So what are some of the top tips to maintain a fit and healthy credit score and report?
- Make all repayments on time
- Close any unnecessary credit
- Only apply for credit when you need it
- Do not overdraw
- Pay all defaults
- Display good savings conduct by making regular deposits into savings accounts
- Seek help if you are struggling to keep up
- Regularly check your credit report and score.
What are the client benefits to all of this reporting?
- Applying for credit is becoming quicker and faster
- Interest rates for good credit are better than for bad credits
- There is now better awareness and education on the credit process than there ever has been
- There is now a tailored credit approach under Best Interest Duty
Mortgage Brokers use the credit report as a primary document when assessing their client’s ability to borrow and choosing an appropriate lender and product.
How can you seamlessly introduce the discussion of Credit Score and Credit Reporting into the annual review advice process?
- Incorporate your authorisation to collect a credit report into your privacy statement/form which your client agrees to and signs in preparation for an annual review
- Enhance your fact find to include full debt details
- Check the data collected against the credit report (open and closed)
- Review the credit report with your client to ensure it is correct
- Implement a good credit management system into your advice
- Always check the client’s interest rate to make sure they have the best deal available
I hope this helps you better understand the impacts of CCR and supports your education of the client and you can add these steps in your advice process.
Chris Booth
CEO, Lydian Financial Services