Changes to Credit Score Calculations

What is Comprehensive Credit Reporting (CCR)?

CCR refers to the credit history information that lenders can access through credit rating agencies. It expanded the types of consumer credit information that can be collected and reported, shifting from a negative reporting system to one that includes positive information.

This means lenders can now see additional details such as mortgage history, including repayment history over the past two years, credit card limits and repayment history, and repayment history for car or personal loans.

While the big four banks are required to use CCR more extensively in their credit assessments, it remains optional for smaller banks and other lenders.

Who does this affect?

In short, this affects all eligible consumer credit accounts, including home loans, personal loans, car loans, credit cards, and overdrafts.

In the past month, approximately four million mortgage accounts, accounting for about 80% of all mortgages in Australia, have been included in the CCR system. Additionally, 15 million credit cards, or 60% of all cards, have been reported.

Following the initial data submission, the big four banks must keep the information up to date.

How does it impact you?

• For individuals with strong credit histories, there is potential to secure lower interest rates, while those without may face higher rates or difficulty obtaining credit.
• Increased competition resulting from CCR implementation may lead to better deals on mortgages, personal loans, and business loans in the long run.
• The inclusion of positive information can balance out previously reported negative information.
• It provides greater transparency on borrowers' credit history and their ability to repay loans.
• Therefore, if you have a good credit history—paying down your mortgage, making timely car loan payments, and managing your credit cards responsibly—you may be able to negotiate better interest rates.

What can you do to maintain a strong credit report?

1. Regularly review your credit report.
2. Report any errors promptly.
3. Ensure timely bill payments and loan repayments.
4. Pay off your credit card balance in full each month.
5. Consider reducing your credit card limits.
6. Consolidate your debt if it makes sense for your situation.
7. Limit credit inquiries, as frequent applications can have a negative impact.
8. Remove your name from utility bills when you move.
9. Exercise caution to prevent identity theft.

Why is it more important now to maintain a clean credit report?

With the changes in CCR and lenders' increased focus on credit scores to determine interest rates, having a clean repayment history is crucial for future credit applications. Banks and lenders can now see more of how individuals manage their debt, which can benefit both parties by increasing the chances of securing finance and potentially obtaining better deals.

What are the benefits of commercial finance?

1. Business growth: It provides capital for expanding operations and seizing growth opportunities.
2. Cashflow management: Helps businesses navigate cashflow fluctuations and maintain smooth operations.
3. Working capital: Access to funds for day-to-day operations and immediate financial needs.
4. Asset acquisition: Financing options for acquiring essential assets without depleting cash reserves.
5. Flexibility: Tailored financial solutions that meet specific business needs.
6. Tax advantages: Some options offer tax benefits, such as deducting lease payments or claiming depreciation.

Overall, commercial finance enables businesses to grow, manage cashflow, acquire assets, and achieve their strategic goals. We can assist you in finding the right commercial finance solution for your business.