More Loans Available Under New System

Posted on 25/09/2019  
More Loans Available Under New System

Australian credit bureau Equifax says $20 billion in extra loans could be granted to consumers over the next year, due to a new regime giving lenders greater detail on customers' debts and repayment habits.

In a move previously hailed as a "game-changer" for borrowers, a system known as "comprehensive credit reporting" (CCR) passed a major milestone earlier this month. All four of the major banks are now providing credit bureaux with more detailed customer data relating to credit card usage, personal loans and mortgages.

With all four major banks now participating in the scheme, there is a much more comprehensive set of data available for vetting borrowers, including their outstanding loans and their repayment histories.

Equifax, formerly known as Veda, says its early analysis of the data shows the net effect will be roughly a 10% increase in the number of people who have a credit rating high enough to get approved by a bank or other lender, on average.

Home-owners stand to save an average $40,000 over the life of their mortgages under the new credit reporting laws.

The savings will work out to about $112 per month for the average mortgage holder with a 25-year loan, according to consumer advocate group creditsimple.com.au.

The group’s CEO David Scognamiglio says the introduction of Comprehensive Credit Reporting will be a game changer for mortgagees because banks will see the positive records of millions of homeowners for the first time.

Banks could previously only judge how much they could lend property buyers based on their negative credit score, he says.

“Good qualities like paying their credit card or car loan on time were never included,” Scognamiglio says. “This gave an unclear picture on what they could actually afford to borrow.”

Under the new Comprehensive Reporting system, an individual’s positive credit payment information that was previously held only by their banks will be held by the credit bureau and shared with other lenders.

“Registries like illion.com.au will now house the new data, allowing up to 90% of home-owners to qualify for better mortgage deals,” Scognamiglio says.

He says the average mortgage holder may be able to get up to 0.5% off their current mortgage rate once their positive credit history is included on their credit record.

This worked out to a saving of $40,000 over 25 years for the holder of the average Aussie home loan of $372,902, he says.

Those who purchased properties four or five year ago when rates were considerably higher would potentially save the most.

“A good score means you are a valuable commodity to a bank … banks will see you are a great payer even if your history is with another bank. That’s a game changer, and will breed new competition into the market, which means rates will get better.”

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