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Comprehensive credit reporting equals cheaper rates: report

by Nick Bendel9 minute read
The Adviser

Lenders have been urged to embrace Australia's new credit regime, which has been forecast to make credit easier and cheaper to obtain.

The final report of the Financial System Inquiry endorsed comprehensive credit reporting, which came into effect in March 2014.

The new rules allow lenders to consider positive credit history as well as negative credit history when deciding whether to approve a loan.

Empirical evidence suggests comprehensive credit reporting "reduces the likelihood that originated loans will default", which in turn reduces interest rates, the report said.


Evidence also suggests that it "increases the availability of credit", the report added.

"More comprehensive sharing of credit data would reduce information imbalances between lenders and borrowers," it said.

"It would also facilitate borrowers switching between lenders and greater competition among lenders."

The report recommended that the federal government should support industry efforts to expand credit data sharing, which is voluntary for lenders.

"For a major institution with a relatively large customer base, early and full participation may provide, at least initially, relatively larger benefits to other, smaller participants than for the institution itself," the report said.

"As participation and system-wide data grow, net benefits increase for all comprehensive credit-reporting participants.

"Further, credit providers that do not participate are at risk of adverse selection with respect to potential new borrowers – a risk that becomes more acute as industry participation increases."




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