Late Payers Should Beware Of New Credit Reporting Regime
Currently in Australia only payments more than 60 days late are likely to be recorded as overdue, but from March next year payments overdue by only five days will be noted as “not made”.
A payment more than 60 days late will continue to be tagged as a “default”, and, as is also now the case, payment histories will only be given to utilities and telecommunication companies that provide credit when applicants have previously “defaulted”.
At present credit reports include applications only, not whether credit was approved or declined by a credit provider.
However, from March 2014, comprehensive credit reports will include not only applications for credit, but also whether credit accounts for mortgages, personal loans or credit cards were opened, and what credit accounts were closed.
Henceforth credit providers will be able to see not only credit limits that may have been placed on an applicant for credit, but also that applicant’s payment history.
What This Means
These changes make it highly likely that late payers will now have to pay higher interest rates than people or companies that pay on time, and in some instances may have their applications for credit or loans refused.
Certainly everyone needs, if they haven’t done so since December 2012, to think seriously about making a habit of paying on time, because the new credit reporting regime can include all payment records since then in the histories of credit applicants presented to credit providers.
Financiers lobbied for the changes, arguing these were needed in order for them to be able to lend money responsibly by readily identifying people and organisations not properly managing their debts.
Credit rating agencies also said the changes were needed to bring Australia into line with other developed countries.
Reports Not Deciders
According to media reports, Dun & Bradstreet Director of Consumer Risk solutions Steve Brown, said it’s not expected in future that credit providers would make lending decisions on the basis of credit reports alone. They would also look at a range of wider issues to determine an applicant’s current capacity to repay.
“Lenders will now much more effectively be able to assess current capability to repay a loan. For example a person or company that had several years previously – perhaps because of reasons beyond their control – been a bad payer, might now be well on the way to establishing a record for prompt payment, and the new credit reporting system would show this,” Mr Brown said.
Nevertheless there’s widespread concern about potential unfairness of the change whereby a record of “not made” will be included in a credit report when a payment is only six days late (payments more than five days overdue can be listed in the new credit reports).
A payment could be missed because of a bank error, a fire, a flood, sudden illness, or an accident resulting in serious injury.
We’d like to see a concept of fairness incorporated in the new regime. Perception of a person’s or a business’ credit worthiness shouldn’t be clouded unjustly.
Avoid This Trap
There have been newspaper accounts of “troubled borrowers with a black mark against their name forking out thousands of dollars to try and clean up their credit files”.
It’s true. So called “credit repair agencies” have been seeking from individuals hefty fees to remove damaging information from their files so as to allow access to credit.
In fact genuine credit reporting agencies will supply free to applicants, requested copies of their credit reports and the applicants can then go to privacy commissions or ombudsmen to get free advice on how best to remove concerns they might have about their credit reports.
It might normally take a credit-reporting firm like Dun & Bradstreet up to 10 working days to provide a free requested copy of a credit report it. They will however, most likely charge a fee for an express service and a fee to notify you when a change is made to your record.
Many individuals or businesses might be unaware of a black mark on their credit file until attempting to borrow money, so there could be merit in paying a fee for alerting them to any negative changes to their files so that unjustified reports could be removed promptly. However if a black mark is correct it must stay on the record.
