But don’t worry! It’s a good thing for most people.
Previously, when applying for a home loan, banks and credit providers would only look at your ability to service the mortgage; so, basically, your income.
That was before the introduction of Comprehensive Credit Reporting (CCR). Now, borrowers are assessed on their full financial history, including income, expenses, defaults and even the person’s record and reliability to pay a bill on time.
Also known as Positive Credit Reporting, CCR makes recording positive credit information on credit histories mandatory. The rollout started with Australia’s major banks which were required to share all their credit data by the end of September 2019. By July 2021, all financial institutions offering loans will have to comply with CCR. A lot of lenders have now implemented CCR earlier. But what does it mean for potential borrowers?
Why Comprehensive Credit Reporting may help your loan approval
Historically, a person’s credit report or score was all about bad marks.
However, the introduction of Comprehensive Credit Reporting completely changes the story. CCR will determine whether an individual is financially responsible or not.
Firstly, thanks to the positive credit data now being tracked in credit reports (bills paid on time, low balance on credit cards, debts paid off, etc.), financial hiccups will become easier to recover from. More importantly, responsible consumers should see their credit scores get even better, giving them more leverage when negotiating a loan from a financial institution. This may help your loan get approved, and may also allow you to negotiate a better interest rate.
With the CCR system, lenders will have a broader understanding of an individual’s ability to repay debt and will be able to assess their risk profile more comprehensively. This change will in-turn see mortgage providers start chasing the “good pupils”. They will want to attract and retain the safest borrowers, the ones who appear to be financially healthy, but who are not necessarily the ones with the highest income or buying power.
Negotiate a better interest rate and borrow more
The introduction of Comprehensive Credit Reporting will make the power progressively shift from banks to borrowers. The financially mature, responsible consumers will finally get a chance to be rewarded for their good marks.
Thanks to CCR, new opportunities will arise for individuals able to prove healthy financial behaviours. By showcasing a good credit score, they will have the power to capitalise on competition to negotiate better rates, and potentially, also borrow more.
Similarly, home owners should look at the opportunity to refinance their mortgage. Thus can also present a good opportunity to check your credit score and understand where you sit.
You will likely always have borrowing options
CCR is not something to be concerned about. Over the last few years there has been substantial growth in the number of credit provider alternatives in the market.
Lenders like LJ Hooker Home Loans offer a real alternative to traditional banks with more product options, high service levels, and ongoing 7 day-a-week support from a local lending specialist.
There are now more lending solutions to assist non-traditional borrowers. This includes greater options for self-employed people, people with past issues on their credit report, and even people who have had past bankruptcy. Your current situation becomes more important and these credit providers still act responsibly.
With these changes in mind, people who might not be ready to buy in 2020, but who are planning to invest in the next five years, should anticipate their move. How? By making sure they do everything in their power to improve and maintain the best credit score possible. This way, they will guarantee the best conditions for their future loan.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.