The way your credit rating is calculated is changing big time. A new comprehensive credit reporting (CCR) system will give lenders access to more information about your credit history than ever before. And this may change your credit rating — for better or for worse.
More visibility to lenders
Up until now, lenders have only been able to find out negative information about your credit history; payment defaults, bankruptcies and court orders etc. Moving forward, your mortgage repayment history, credit card limit, as well as the repayment history on your credit cards, car loans and personal loans will also be shared with them.
If you took a credit card a couple of years ago but have never missed a payment, your credit score may well go up. But in case you have several cards and you are frequently late with your down payments, your score may go down. Even a repayment agreement with a lender could be marked as making a late payment. As CCR only shows your credit limit and not your actual amount owing, lenders view that credit limit as your total amount of liability.
Why does it matter?
When applying for a loan, lenders use your credit report as a tool to determine your suitability. Lenders having more information about your credit history is likely to lead to more variability in the interest and fees they charge. People with good credit histories could get a discount and those with bad credit may be charged more.
At the moment about 80 per cent of mortgages and 60 per cent of all credit cards in Australia are known for CCR and more information will continue to be fed into the system in the coming months. By law, the big four banks must share their CCR data. For smaller banks and other lenders it is optional to share their information, but most are.
How to improve your credit score?
In order to ensure that your credit score looks as appealing to lenders as possible, you may want to:
- Make sure you make all repayments on time. Under CCR you have a 15-day grace period before a missed payment goes on your record.
- Reassess how many credit cards you really need and with how high limits.
- Make sure your detailed credit report is correct. If not, get in touch with your lender to make sure they correct the record.
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