25 April 2014 New credit reporting regime should benefit investors

The new credit reporting system, which commences on 12 March, will reward good money managers with lower finance costs, according to a mortgage advisory company.

Smartline Personal Mortgage Advisers said a majority of people should benefit from the new system, which offers more transparency and will enable lenders to offer more attractive terms to those customers deemed to be ‘low risk’.

On 12 March, changes to the Privacy Act will see Australia move away from the existing ‘negative’ credit reporting system, which only notes defaults, bankruptcies, other black-marks in your history and applications for credit.

The new system will enable credit providers to access more comprehensive information that should assist them to make better lending decisions, Smartline said.

“This means they can make better informed decisions about an individual’s financial situation and the likelihood of them not meeting their obligations,” Smartline’s Michael Daniels said.

“Those who are viewed as not being a strong manager of their money will most likely either find it harder to access funds and/or pay a premium in the form of higher rates.

“With access to much more detailed information about a person’s management of their debt obligations, it makes sense that lenders should be able to provide money at a cheaper rate to those who manage their money well.”

Credit providers can legally start reporting this more detailed information as of March 12, meaning historical information prior to this date cannot be included.

“For those who have perhaps been a bit casual in keeping up to date with their financial responsibilities, now would be a good time to establish some better money management habits,” Mr Daniels said.

Smartline also released a summary of the main changes to the reporting system, including:

  • Information about your monthly repayment conduct (i.e. whether or not you have paid on time) over the past two years can now be reported.
  • If you apply for credit, the decision (declined or approved) by the credit provider can now be reported.
  • The current limit on all of your credit cards (and other credit facilities) can now be reported. This also means that if you get a limit increase, this can now be reported on your credit record.
  • The repayment term and repayment type on all of your credit facilities can now be reported.
  • A credit provider can now also provide an opinion that you have fraudulently attempted to get credit or fraudulently evaded your obligations to repay credit, or that you do not intend to comply with your repayment obligations. 
  • Credit defaults can be lodged on any outstanding amounts over $150 if you are more than 60 days behind on your repayments.

Reproduced in full with permission: Smart Property Investment 12 March 2014

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