Whether you're trying to buy a property, refinance a mortgage or organise car finance, Canberra's latest finance regulations might help you.
Comprehensive Credit Reporting (CCR) is a new way for the finance industry to conduct credit scoring. It will be implemented by credit providers by July 1, 2018.
Traditional credit scoring is used by lenders to assess how your past behaviour influences future debt repayments. However, it uses only "negative" scoring, such as late payments, defaults and loan arrears to give you a score. This means, for example, a phone bill you defaulted on a few years ago can come up when you apply for a home loan, but it doesn't take into account years of regular credit card repayments.
Under the CCR, credit scores also recognise your good behaviour with credit. Essentially, they're collecting more data (negative and positive), which over the long-term builds an accurate picture of your history and behaviour.
Effectively, a borrower with small credit blemishes could be seen as able to recover quickly because of their subsequent positive record. So, lenders will be able to offer better interest rates to would-be customers.
As the system matures, other types of debt, such as mobile phone plans, power, water and gas, can also be incorporated, leading to "behavioural" assessments rather than just profiling.
The new regime will allow lenders to create better customer profiles, and for brokers to proactively find better deals for their clients.
To put yourself in the best possible position, understand these basics:
Do's
Pay on time: credit cards and loans have regular monthly repayments. When you make a habit of repaying on the due date, you build a positive credit history.
Available balance: if you maintain an available credit card balance that's always in excess of what you owe, you build a positive history.
Keep the credit card you have serviced for a long time: if you use a few cards to get you through a tough time, pay out the most recent cards. Keep the longest-term credit card and its "good" credit history - it accrues more positives.
Prioritise your mortgage: your mortgage is likely to be the largest and longest-term of your debts, so prioritise the repayments and build a long, positive record.
Consult a broker: you might not understand how good your credit score is, but a broker does and can probably use it to find you a better loan.
Don'ts
Use multiple interest-free cards: rolling-over credit card debt into a new card that's interest free might be a necessary one-off manoeuvre, but don't make it a habit - it scores as a negative.
Apply for too many loans and cards: be sparing in your applications - they can score negatively.
Make late payments: do what you can do to avoid missing payments.
Go over 60 days: if you do have to miss a repayment, don't let non-payment go more than two months. If it is because of a life event, such as serious illness, speak to your lender as soon as possible.
The CCR will be a positive for many borrowers, because for the first time Australians will be credit-scored on what they do right, as well as what they've done wrong.
Good luck.
Mark Bouris is the executive chairman of Yellow Brick Road.
