You probably heard about positive (or comprehensive) credit reporting – but what is the difference and the advantages compared to negative credit reporting?
Below are some of the key benefits for consumers and lenders.
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. How does positive credit reporting help borrowers?
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. The wider availability of positive credit reporting information helps borrowers with a strong track-record of making timely credit repayments gain better recognition from lenders.
2. Australians with a strong credit history can also potentially access more competitive deals and interest rates.
3. More detailed data sharing also assists others to avoid entering into levels of debt they may find unmanageable, which could lead to getting into financial difficulty.
4. Positive data can also help potential first home buyers who don’t have a long credit history but do have a sound one, to be approved for finance, where previously they may have been declined.
Addressing financial hardship
The system doesn’t just help those with strong credit scores – Repayment History Information mechanisms built into the positive data sharing regulations can support people experiencing financial hardship too.
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. Working out unique agreements before a customer defaults and receives a blackmark on their credit report is made easier with this broader view, helping protect those who are suffering major financial changes or hardships from getting into further debt.
What’s in it for credit providers?
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 lenders and banks:
1. With positive information being shared, credit providers can better identify and evaluate who to provide credit to, based on a broader range of data.
2. Positive data gives credit providers a much more comprehensive view of their customer’s financial situation, creating an environment to support their responsible lending decision around the level of debt the borrower could manage without undue financial pressure.
3. This helps reduce the number of people who may default on a loan, increase competition among credit providers and potentially drive down the cost of credit for many customers.
Source and inspiration: Experian, Know the score: how positive data could impact your next credit application.
Want to know your credit score? Check out more here.