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FHBs to benefit most from CCR

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Reporter 3 minute read

First home buyers will be the borrowing segment that will benefit most from comprehensive credit reporting, according to credit bureau Experian.

Research undertaken by credit bureau Experian reviewed the impact of comprehensive credit reporting (CCR) on 2.5 million individuals with open credit card information.

Looking at three months’ worth of credit card information, the bureau suggested that first home buyers (FHBs) would be one of the biggest contingents to benefit from more transparent credit data.

While the deadline for submitting mortgage data under the CCR regime is currently February 2021, CCR officially began in late September, when the country’s largest banks began sharing customer repayment histories (both positive and negative) with other lenders to enable better understanding of a borrower’s capacity to repay debt.

The Experian research showed that 5.8 per cent of first home buyers and young families in new homes across Australia’s fastest-growing suburbs have missed a credit card repayment in the last three months and are more than twice as likely to fall behind in payments as the most affluent group of borrowers in Australia (2.8 per cent).

Experian added that this demographic largely falls in the 25–44 age range, with children below 14 years old with an average weekly household income between $1,500 and $2,499.

However, it outlined that despite being the potentially “riskiest” group of borrowers, the majority of first home buyers and young families are seeing a boost to their creditworthiness rating.

Further, the bureau found that there was an average of a 4 per cent jump in these segment’s credit scores now that lenders are sharing positive (rather than just negative) credit data.

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The research additionally found that those in the 18- to 25-year-old bracket would see the biggest increase in credit scores at 17 per cent, followed by 25- to 35-year-olds (5 per cent).

Experian therefore suggested that the new positive data would help younger Australians, or those without a long credit history, build a positive credit score more easily and quickly than pre-CRR.

It warned, however, that there was a direct correlation between having multiple credit cards and having a lower credit score, with scores tending to decrease as the number of cards increased. For example, Experian found that an individual with two credit cards is 54 per cent more likely to miss a payment than those who only have one.

Speaking of the data, the executive general manager, credit services and decision analytics A/NZ at Experian, Poli Konstantinidis, said: “Potential home buyers need to be aware that their credit card usage, including the number of cards they own, can now have an impact on their future home loan applications.

“Lenders are now able to see the number and type of credit accounts people have and whether they have been paying loans back on time, which helps them better evaluate who to provide credit to and lend more responsibly.”

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Mr Konstantinidis’ advice to potential home owners and anyone about to apply for a line of credit was to “keep checking your credit report regularly to either take advantage of any increases in your score or make sure you’re not applying for a home loan with a poor credit score”.

As well as CCR, a new responsible lending obligation imposed by the corporate regulator will expect credit licensees to “assume a higher amount of repayment” for credit card debt when assessing a client’s home loan application.

The Australian Securities and Investments Commission (ASIC) recently announced new assessment criteria that are to be used by banks and credit providers when assessing new credit card contracts or credit limit increase for consumers.

From 1 January 2019, credit licensees will be required to assess whether a credit card contract or credit limit increase is “unsuitable” for a consumer based on whether the consumer could repay the full amount of the credit limit within the period prescribed by ASIC.

The regulator has noted that the new responsible lending obligations will apply to licensees that provide credit assistance and licensees that are credit providers, for both new credit card contracts and credit limit increases under existing credit card contracts.

[Related: Credit card reform to affect mortgage applications]

FHBs to benefit most from CCR
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