Changes to privacy laws to be introduced in March 2014 mean paying your bills late could seriously damage your credit rating. And because the changes will allow institutions to look at two years of your payment history, your tardiness now could affect any loan applications after March.
The details of when and how past-payment history will be collected is being ironed out as the industry and the regulator work on the code of practice. A draft code was released for consultation in March, but what is definite is that there will be more information collected as part of your credit report.
Before the legislation being passed in December, Australia was what is termed a "negative" data-reporting country. That means the information that was collected on your credit report related to your credit applications, the number that were refused and any defaults or bankruptcies. From March 2014, the data will also include your repayment history.
"What the general public needs to understand is the environment is changing and things that didn't influence their credit in the past, will in the future," Dun & Bradstreet chief executive Gareth Jones says.
Dun and Bradstreet, Veda and Experian are the three providers of credit reports to consumers in Australia.
Banks and other institutions that provide finance use these reports to make decisions but do not rely completely on that information. According to Veda marketing manager Belinda Diprose, the credit report probably accounts for about 25 per cent of that decision, but that might change to more than 50 per cent of the decision after March 2014.
The panel above details five things that have changed in terms of the extra data that can be collected. "The key message is if you want better access to credit in the future, make sure you're paying your bills on time," Jones says.
Diprose says the changes have been a long time coming and bring Australia in line with most Organisation for Economic
Co-operation and Development countries.
Diprose believes it is a much fairer system and good news for some consumers. If someone had a credit application refused four years ago (information stays on your report for up to seven years), but under the new system they were able to show good repayment habits, then they now have additional positive information working in their favour when it comes to credit. Andrew Duncanson, the research and insights director at comparison website Mozo, says "it also gives you an ability to show that you are doing things well. So if you are diligently paying something off, that will appear on the file.
"Get organised, make sure things are paid on time. That's going to be the most powerful indicator for a lender."
We also don't have credit rankings or scores in Australia, or at least ones that are freely available to consumers. But that might be about to change.
Diprose says Veda generates ratings, which they make available to institutions that seek credit reports on individuals, but at this stage they're not available to consumers. "They are available to credit providers who use them," she says. "There really hasn't been a demand of credit scores from consumers and I think that's due to a lack of awareness."
In the US and Britain, consumers are well aware of their credit ratings and sometimes use them to get better deals on financial products.
Jones is from Britain and says: "You can phone up one of the credit ratings in the UK and you can get your score out of 100. That is something I expect we will get in Australia."
Keeping out of the red
Five key additional data fields will be collected from March 2014:
The date the credit account was opened.
The date the credit account was closed.
The nature of the credit account or the type of credit account, i.e. whether it is a credit card, mortgage.
The credit limit of the account.
24 months of repayment history of the account.