Know the score: how positive data could impact your next credit application - Experian

 
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Know the score: how positive data could impact your next credit application - Experian
Know the score: how
    positive data could impact
    your next credit application

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Know the score: how positive data could impact your next credit application - Experian
Credit applications
    and your data
    When you apply for credit                           Until the reform of the Privacy Law in 2014,
                                                        credit providers based their assessments of
    in Australia, the credit                            you as a potential borrower on whether you
    provider will usually ask for                       had any negative information on your credit
    your permission to obtain                           report. The information included was limited to
                                                        basic things like the number and type of credit
    and access the information                          applications you had made (but not whether
    on your credit report. The                          they were approved or not) and details of any
    information helps the credit                        overdue debts, defaults, bankruptcy, or court
                                                        judgments against you.
    provider determine if you can
    manage to repay the loan and
    therefore process a decision
    to approve your application.

    Positive data now
    increasingly available
    Also known as Comprehensive Credit                  2018’s legislation fast-tracks Australia’s
    Reporting (CCR), positive credit reporting          position in the global credit industry, in line with
    makes it easier for lenders to make a more          many other developed nations like the UK
    comprehensive assessment of your credit             and the USA, where borrowers with strong
    history when you apply for credit. Credit reports   credit histories have long used this information
    now include information about the current           to seek out better credit offers.
    accounts you hold, what accounts have been
                                                        In fact, overseas markets that transitioned to
    opened and closed, the date that you paid
                                                        CCR ahead of Australia have seen significant
    any default notices, and how well you meet
                                                        improvements to the lending environments
    your repayments.
                                                        for borrowers.

              In the US, CCR enabled an uplift of up to 40% in access
               to credit among younger and underserved borrowers.
         In Japan, the probability of delinquencies of 60+ days reduced by
           34%, according to the Policy and Economic Research Council.
            In Hong Kong, credit card lending increased by almost 10%
                in the two years following the introduction of CCR.

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Know the score: how positive data could impact your next credit application - Experian
Timing

    Greater Australian participation in positive    With access to richer data brought about
    credit reporting forms part of Federal          by these regulations, credit providers can
    Government initiatives, marking a significant   better identify and evaluate who to provide
    milestone towards a much fairer system.         credit to, based on a greater level of insights.
    The big four financial institutions (ANZ,       It is therefore important for all Australians
    Commonwealth Bank, NAB and Westpac)             to understand how their financial history
    as well as some smaller lenders have            impacts their next credit card, loan or
    started to share their customers’ positive      mortgage application.
    data. Their involvement could trigger other
    credit providers to follow suit.

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Know the score: how positive data could impact your next credit application - Experian
How does positive credit
    reporting help borrowers?
    Under the positive credit reporting system, when you apply for
    credit, lenders you have authorised to do so can see if you have
    been repaying your credit card, personal loans or mortgages
    on time over a period of up to 24 months, including when you
    have paid off a credit account.
    Under the negative reporting system, a credit report wouldn’t show any information
    about how diligently a person had been paying off a loan, credit card or mortgage.
    But when positive data is shared, a lender is able to obtain a much more
    comprehensive picture of a person’s repayment history.

    Key benefits of positive data sharing for consumers:
    1. T
        he wider availability of positive credit       3. More detailed data sharing also assists
       reporting information helps borrowers                others to avoid entering into levels of debt
       with a strong track-record of making                 they may find unmanageable, which could
       timely credit repayments gain better                 lead to getting into financial difficulty.
       recognition from lenders.
                                                        4. P
                                                            ositive data can also help potential first
    2. Australians with a strong credit history can       home buyers who don’t have a long credit
        also potentially access more competitive           history but do have a sound one, to be
        deals and interest rates.                          approved for finance, where previously
                                                           they may have been declined.

    Addressing financial
    hardship
    The system doesn’t just help those with         Working out unique agreements before
    strong credit scores – Repayment History        a customer defaults and receives a black-
    Information mechanisms built into the           mark on their credit report is made easier
    positive data sharing regulations can           with this broader view, helping protect
    support people experiencing financial           those who are suffering major financial
    hardship too.                                   changes or hardships from getting into
                                                    further debt.
    Through greater visibility of individual
    circumstances, credit providers are better
    positioned to make informed case-by-case
    decisions with a holistic view of the
    customer’s repayment history at hand.

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What’s in it for the banks?
    It might come as a surprise to people that Australian credit providers not
    sharing positive credit information have less visibility of how indebted
    a borrower is. This is because under negative reporting, a borrower’s credit
    file doesn’t have information on credit limits, repayment history or account
    open and close dates.

    Key benefits of positive data sharing for credit providers:
    1. W
        ith positive information being                  3. This helps reduce the number of
       shared, credit providers can better                   people who may default on a loan,
       identify and evaluate who to provide                  increase competition among credit
       credit to, based on a broader range                   providers and potentially drive down
       of data.                                              the cost of credit for many customers.

    2. Positive data gives credit providers
        a much more comprehensive view
        of their customer’s financial situation,
                                                              After CCR was introduced in Japan,
        creating an environment to support
                                                              the probability of borrowers being
        their responsible lending decision
                                                               unable to make a repayment for
        around the level of debt the borrower
                                                                 0+ days was reduced by 34%.
        could manage without undue
        financial pressure.

    Are Australians aware of the change?
    To find out where Australians were at in             Although positive data sharing has
    their understanding of positive data sharing,        already begun, a whopping 60% of
    Experian conducted large-scale research              consumers surveyed were not aware
    in both 2017 and 2018 to map local perceptions       that credit providers plan to share
    and see how they changed over the year.              more of their personal financial data:

          31%                        32%                       23%                       23%
      are supportive if it    are also happy to share    stated they didn’t want          also said they
     means responsible          more data if it helps    their data shared with      are supportive only
    people are more likely    them negotiate a lower      third parties without       if their information
      to be approved for       interest rate or create        their consent        is kept safe and secure
     credit, or those who      more competition and
     can’t afford to repay          lower costs
    a loan are more likely
        to be declined

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Why every Australian should care
    More than ever before, your financial history counts when you apply for
    credit. Increasingly, lenders take into account your entire available repayment
    history when deciding whether or not to approve your credit application.
    Although positive data sharing is a relatively recent development amongst the majority
    of credit providers, momentum is growing – especially here at the Experian credit
    bureau. All Australians need to be aware that their credit repayments today can impact
    their credit scores and applications for credit now and in the future.

    Credit applications with positive data
    Below are six examples of possible credit provider assessments of negative and positive credit
    reporting data (this information can be used by lenders in combination with other considerations).

                                                NEGATIVE DATA (ONLY)
    Negative data          No defaults        No defaults          No defaults       $500 default        $500 default       $500 default
                                                                                       Paid 18             Paid 18            Paid 18
                                                                                      months ago          months ago         months ago

    Initial decision

                                               COMPREHENSIVE DATA
    Negative data         No defaults         No defaults         No defaults        $500 default        $500 default       $500 default
    Same as above                                                                      Paid 18             Paid 18            Paid 18
                                                                                      months ago          months ago         months ago

    Additional             1 Credit card    3 new Credit cards     1 Credit card      1 Credit card       1 Credit card      1 Credit card
                         account up to date account up to date    3 periods down        low limit           low limit       3 periods down
    positive data
                            1 Mortgage         1 Mortgage         1 Personal loan      1 Mortgage         1 Mortgage        1 Personal loan
                         account up to date account up to date    2 periods down    account up to date account up to date   2 periods down

                                             1 Personal loan                         1 Personal loan
                                            account up to date                      account up to date

    Repayment                Strong          Inconsistent         Overall weak        Consistent         Consistent         Overall weak
    history

    New                 POSITIVE        POTENTIALLY              NEGATIVE           REPAIRED              POSITIVE           NEGATIVE
    insight            TRENDING            OVER                  TRENDING            CREDIT              TRENDING            TRENDING
                                         COMMITTED

    Potential
    new decision

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So, what should you do now?

    With credit providers looking    Your credit score may change       Always try to pay bills
    back at up to 24 months of       over time, so check your           on time to help protect
    a customer’s credit repayment    credit report information          your credit score. Paying
    history, borrowers need to       regularly. As new positive         bills significantly late to the
    look after their future credit   data elements are factored         point where debt collection
    score by diligently making       into credit reports, it’s a good   agencies are engaged can
    mortgage, loan and credit        idea to regularly check the        negatively impact your
    card repayments on time.         information on your credit         credit rating.
                                     file to make sure you know if,
                                     and when your credit score
                                     changes and can ensure the
                                     information is correct.

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Find out about your
    credit score
    Being aware of what your credit score is, and how
    your financial decisions impact your credit report,
    is important for all Australians to understand.
    It helps you to work towards addressing any issues before
    applying for a new credit card, loan or mortgage.
    But surprisingly, the majority of Australians Experian
    surveyed have never checked their credit score.
    Australians should check their credit report regularly and
    they can do this at any time free of charge by contacting
    Experian or by creating a free credit profile with Experian
    partners like creditsavvy.com.au that can help monitor their
    Experian credit score and credit file information.

         Awareness across                      Again, despite               However, when
        Australia continues to                improvements,                  asked what
     improve, but 65% of people         misconceptions remain                 worsens a
      have still never checked          rife about what financial            credit score:
          their credit score              activities people think
       (an improvement from            improve their credit score:
            71% in 2017).

    22%  don’t know how to          87% incorrectly
                                                     believe        76% correctly
                                                                                 identified “not
           check their credit score         paying their utility           paying a bill for so long
           (an improvement from             bills on time improves         that a debt recovery
           32% in 2017)                     their score                    agent contacts you”
                                            (slightly worse from           (an improvement from
    17%  don’t know what a                2017 at 86%)                   70% in 2017)
           credit score is
           (an improvement from              incorrectly believe
                                      22%                            67% correctly
                                                                                  identified
           24% in 2017)                       having high value            defaulting on a loan
                                              assets improves              (an improvement from
    13%    haven’t got around
                                              their score                  58% in 2017)
             to it yet
                                              (an improvement from
             (no change from 2017)
                                              26% in 2017)           48% correctly
                                                                                 identified
                                                                           making a high number
                                      17%    incorrectly
                                                       believe           of credit applications
                                             getting a pay rise            in a year
                                             improves their score          (an improvement from
                                             (an improvement from          40% in 2017)
                                             19% in 2017)

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Negative                                                            New positive credit
           reporting system                                                    reporting system

           WHAT COULD IMPACT YOUR CREDIT SCORE*                                WHAT COULD IMPACT YOUR CREDIT SCORE*

                Paying a default                                                    The same matters as under negative
                Increase score                                                      reporting, plus:

                Negative data expires and is removed                                Adding a new credit account
                from your credit report over time                                   Increase or decrease score
                Increase score
                                                                                    History of making credit
                Multiple credit applications                                        repayments on time
                in a short space of time                                            Increase score
                Decrease score
                                                                                    Bringing accounts back up to date
                Default (impacts report for 5 years)                                Increase score
                Decrease score
                                                                                    Having too many open credit accounts
                Court judgements                                                    Decrease score
                Decrease score
                                                                                    Having too much unsecured credit
                Bankruptcy actions                                                  (eg credit cards)
                Decrease score                                                      Decrease score

                Not paying a bill that goes to a debt                               Having too high a combined limit
                recovery agency                                                     on credit accounts
                Decrease score                                                      Decrease score

                Short term credit (eg. Pay day lenders)
                Decrease score

                                           WHAT DOESN’T IMPACT YOUR CREDIT SCORE*

                A late utility or phone bill repayment                                       Getting married
                         (unless you default)
                                                                                  Getting a copy of your credit report
                          Getting a pay rise                                                 from a bureau

                      Having high value assets                                     Having a lot of money in the bank

                            Changing jobs                                          Having (or not having) dependents

    * A score may go up or down because of new information, but not always. For instance, if you already have a very low credit
    score, a new default may not lower your score any further. Similarly a default will stay on your credit report for five years even
    once you pay it off, and should there be other defaults on your file, your score may not necessarily increase. Likewise, if you
    already have a very high credit score, continuing to make your payments on time may not make your score go any higher.
    It’s important to note that there is no quick way to fix a credit score - repairing bad credit takes time.

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About Experian
     Experian is the world’s leading global information services
     company. During life’s big moments – from buying a home
     or a car, to sending a child to college, to growing a business
     by connecting with new customers – we empower consumers
     and our clients to manage their data with confidence.
     We help individuals to take financial control and access financial
     services, businesses to make smarter decisions and thrive,
     lenders to lend more responsibly, and organisations to prevent
     identity fraud and crime.

     We have 16,500 people operating across 39 countries
     and every day we’re investing in new technologies, talented
     people and innovation to help all our clients maximise every
     opportunity. We are listed on the London Stock Exchange (EXPN)
     and are a constituent of the FTSE 100 Index.

     Learn more at experianplc.com or visit our global content
     hub at our experianplc.com/blogs/news for the latest news
     and insights from the Group.

     Legal Disclaimer
     The information contained in this report is for general guidance on matters of interest only and has been prepared
     without taking account of the objectives, financial situation or needs of any particular individual. For this reason,
     any individual should consider the appropriateness of the information, having regard to their objectives, financial
     situation and needs and, if necessary, seek appropriate professional advice. The changing nature of laws, regulations
     and rules, and of economic trends and the variables impacting them across different geographies, may mean it
     contains some omissions or inaccuracies. The information given is provided “as is”, and without warranty of any
     kind, express or implied, including, but not limited to warranty of fitness for a particular purpose. It is not intended
     to represent legal, credit risk, economic or other professional advice. In no event will Experian or its related
     partnerships or corporations, or its partners, agents or employees be liable to you or anyone else for any decision
     made or action taken in reliance on the information in this report or for any consequential, special or similar damages.

     About the research: Survey conducted via Pure Profile in April 2018 using an online survey method.
     Survey completed by 1,011 Australians representative of the nation as a whole aged 18 and over.

     (C) Experian 2018. All rights reserved. Experian and the Experian marks used herein are trademarks or registered
     trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the
     trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified or distributed
     in any form or manner without the prior written permission of Experian.

     EXPNAUWP0001 062018

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