Australia's credit reporting regime is about to change for the better
Laws that restrict what can be recorded on a credit report will be eased, allowing for five new additional data sets to be included on credit reports. Comprehensive reporting is one of the recommendations made by the Australian Law Reform Commission (ALRC) as part of its review of the Privacy Act 1988. The ALRC recommended that the following data be permitted in credit information files.:
- Type of credit account opened
- Date on which account was opened/closed
- Current limit on each open credit account
- 24 months account repayment history
Together, these additional sets will create comprehensive credit reports.
The most important of these is account repayment history, which will showing whether if a person has been overdue or missed payments on credit obligations.
Account payment history will be the single most powerful single predictive element of a person's credit report. It's predictive power will be twice thant of all the other four new elements combined.
Background
Australia's current credit reporting regime is nearly twenty years old. It permits the collection of only negative data, one of few western nations to not use positive data. Veda has led a determined campaign to modernise Australia's credit reporting laws and allow for comprehensive credit reports.
The campaign commenced in 2006 with the Australian Law Reform Commission's (ALRC) review of privacy legislation; the laws that restrict what data can be recorded on a credit report. Some industry organisations only wanted modest changes to credit reports, such as the date an account was opened or closed. Veda supported more significant reforms and campaigned for the inclusion of account repayment history.
The industry association, Australian Retail Credit Association (ARCA) modelled account payment history. It found that account repayment history will contribute 44% per cent of a credit report's predictive power.
In contrast, the existing data fields only contribute 10% per cent of predictive power. The massive boost in the predictive ability of credit reports can significantly improve the industry's ability to predict and prevent credit defaults.
Backing the move for account repayment history and based on analysis conducted, in the report The Benefits of Broadening Access to Credit via Comprehensive Credit Reporting found that a move to comprehensive reporting could boost the Australian economy by $1.7bn*, help lower interest rates, and lower default rates.
The report demonstrated that the move to a comprehensive credit reporting system could also decrease the number of Australians who are financially over-committed and suffering from debt-related stress.
Credit markets and the lending environment are being transformed - and Veda is well advanced to ensure customers gain from the changes.