Forest Lake resident, Mark asks
“If I’ve been late with a number of personal loan repayments, can this affect my credit rating later on?“
In the past, Australia has had a negative credit reporting system, and what this basically means is that on your credit report all that would be reported would be any loans or credit that you’ve applied for the name of the credit provider and the amount.
The other item that could be reported on your credit report were defaults listed by banks and financial institutions as well as telcos and energy companies. It would include details such of the default such as the overdue amount, the date it was listed, the date paid and the name of the creditor who listed it. It remains on the report for a period of five to seven years depending on the type of blemish.
Other items that used to be included on your credit report were commercial credit applications and any overdue commercial credit application details.
Since March 2014, the Comprehensive Credit Reporting System (CCR) has been in place, but it’s only been since the 1st of July 2018 that the major banks were required to share 50% of their data with credit bureaus. So, although it was introduced back in 2014, the banks were reluctant to share their data until the treasurer made it mandatory as of 1st of July 2018.
So, what this means is that Australia has now moved to a positive credit reporting system where comprehensive information about your credit history is now shared with the credit bureaus such as Equifax (formerly Veda) and Dunn and Bradstreet.
Historically details such as repayment history were not shared with the credit bureau unless you went 60 days into arrears and the bank or financial institution listed this as a default against your name on your credit report. Today there is a 24 months history record reflected on your credit report. This means if you are consistently making late repayments it may affect your credit score.
What other information is reflected on your credit record?
Additional information that is now shared includes:
- the credit type you applied for
- the credit amount you applied for
- the date you opened your credit accounts
- the credit account types you opened
- date you close your credit account
- maximum credit amount available for each account
- new and previous credit amounts
- conditions related to your repayments
- monthly repayment history for the past two years
- and lastly any default agreement details
There is some leeway in when you can make repayments. So, under the new rules, a late payment is defined as a payment that is over 14 days late, so there is a two-weeks grace period here. Obviously, it is in your best interest to make repayments on the due date, but if you are a few days late rest assured it will not be marked as a late payment on the credit report.
It’s important to note that the report will reflect your outstanding debts and while its common for people to try and ‘hide’ debt there is no way of not disclosing this information. The new mandated reporting requires any outstanding debts to be shown in the report.
This new credit reporting regime can work for you or against you.
If you’re consistently making repayments on time and you are declaring everything in the application, this new system will work in your favour because it will show that your repayment history is perfect resulting in a higher credit score which improves your chances of being approved. If you are applying for a personal loan a good credit score can assist in securing a more favourable interest rate.
On the other hand, this new regime could potentially make it harder for people to get loans than previously. In the past, under a negative credit reporting system, a default would only be listed if you were 60 days in arrears. But if you were making late repayments all the time, but never got to the point where a default was listed, this would not be reflected on your credit report.
Now under the positive credit reporting system, if you’re making repayments more than 14 days late at any point in the last two years, when you apply for new credit, the lender can now see your repayment history on your credit report and having a late payment history will have a negative impact on your credit score.
So, if you are looking to take out a loan in the near future, it’s very important that you ensure that you make repayments on time for any existing loans that you may have.
Patrick is a Director and a Home Loan Specialist. He has been helping Australians with home loans since 2001. Prior to working as a mortgage broker Patrick was employed by Macquarie Bank for 3 years and also worked as an accountant for a publicly listed company. Patrick holds a Bachelor of Business majoring in Accounting and sub-majoring in Finance and Marketing from University of Technology, Sydney.