I take a look at my credit report every year. It’s interesting.
Not because it has pages and pages of new information about my relationships with lenders over the past 20 years — it doesn’t.
What strikes me is how relatively barren my report is. Don’t get me wrong, it certainly contains accurate, timely information on my credit enquiries. That home loan application from 4 years ago — that’s true. And yep, I was pretty keen for that new piece of plastic earlier this year (hello bonus points!).
All things considered, the credit bureau classifies me as above average. I, on the other hand, think my credit score is a little underdone. I’ve never missed a loan repayment. The same goes for bills.
Better information helps everyone, especially borrowers
Late last year, the Government mandated positive credit reporting.This is great news for our industry.
Why? Well right now I’d say my credit file reflects probably 50–75% of my credit history. The new Positive Credit Reporting regime (also known as Comprehensive Credit Reporting) pushes this much higher. Under the new rules, all lenders (starting with the big banks) will have to start contributing positive information.
For example, when I make a home loan repayment on time my bank will report this to the credit bureaus. They will, in turn, update my credit file with a nice little tick against my loan for that month. If I decide to refinance my home loan down the track, my new lender will be able to view a history of these nice ticks.
But under negative reporting, my new lender would only see that I applied for that home loan. Heck, they wouldn’t even know if I was approved let alone up to date with repayments. All they can see are my credit enquiries, any payment defaults, court judgments or if I’ve had to declare a form of bankruptcy.
For the vast majority of Australians that do make their repayments on time, this can only be a good thing.
And once it becomes mainstream, we’ll see the network effect in action where more borrowers will be able to get a better deal across more lenders. For some prospective borrowers, the extra data available to lenders under positive reporting increases their chance of being considered for a loan they would normally be knocked back for.
Early adopters are already helping borrowers
A small number of lenders recognised the benefits of positive reporting very early on. The category I’m currently focussed on is personal loans, and before the government mandated it, only two personal loan providers were voluntarily contributing data.
At MoneyPlace, customers are already improving their credit scores because of their good repayment behaviour. In fact, many customers that were previously categorised by a credit bureau as very good before taking out our loan have now improved to excellent. This translates to a cheaper interest rate.
And the best part is — they absolutely deserve it.
Hopefully, the new rules will encourage other lenders to reward customers too.
Matthew Santosa is the Head of Broker and Marketing at fintech company MoneyPlace, an innovative marketplace for personal loans. He has 17 years experience across banking and startups across strategy, distribution and marketing.