New credit card rules you need to know about
NEW rules affecting every Australian applying for credit cards, loans or mortgages will soon kick in, but most people don't even know about them.
That's the warning from credit rating bureau Experian, which says two-thirds of Australians are unaware of looming changes to national credit reporting requirements that will enable lenders to see a lot more information about a customer's financial history.
At the moment, lenders only share negative data, like defaults and bankruptcies. But under amended privacy laws as part of new comprehensive credit reporting introduced in 2014, positive data such as repayment history will be shared with credit reporting bureaus and lenders.
While the data isn't yet being shared among lenders, it is being shared with the main credit bureaus, Experian, Veda and Dun & Bradstreet, meaning it will impact applications for credit cards, loans and mortgages.
So what should you do right now? In short, make your repayments on time.
"Credit providers in Australia will soon be looking back at up to 24 months of your credit repayment history, which is why consumers need to start positively impacting their future credit score now by making sure they diligently make repayments on time," said Experian managing director Suzanne Steele.
"Being aware of what your credit score is and the parts of your finances that impact the score is critical. It enables you to know where you stand and address any issues before applying for a new credit card, loan or mortgage.
"Beyond that, my top tips include paying bills on time, doing due diligence before applying for credit and avoid multiple credit inquires in a short period of time."
Ms Steele said it might come as a surprise to some people that lenders currently have limited visibility of a borrower's financial situation.
"All that they can see are the number of applications they've made for credit, the type of credit, the amount applied for and if they default on their payment obligations or become bankrupt or have a court judgment against them," she said.
She described the new regimen as an "overwhelmingly positive change for Australian borrowers". "For example, positive data may help potential first home buyers who don't have a long credit history, to be approved for finance, where previously they may have been declined," she said.
"Positive data sharing will also enable Australians with a strong credit history to access more competitive deals and interest rates ... and assist others avoid entering into unmanageable levels of debt and getting into financial difficulty."
But Ms Steele said a survey of 1000 Australians conducted by Experian in March found 66 per cent of people were unaware of the coming changes. The survey found 71 per cent of people had never checked their credit score, saying their either didn't know how, didn't know what a credit score was or didn't care.
She said out of the 19 countries where Experian operates, only Australia and Brazil had adopted positive data sharing.
"Positive data gives credit providers a 360-degree view of their customer's financial situation, creating an environment for better decision making about the right level of debt the borrower can manage," she said.
"This can reduce the number of people who default on a loan, increase competition among providers and drive down costs for all credit customers."