Comprehensive Credit Reporting (CCR) became compulsory for the Big 4 Banks back in July 2020, and other credit providers have quickly followed suit ahead of a late 2021 deadline. It means that credit agencies are now required to report all credit enquiries (such as a Pre-Approval request), as well as repayment history on open accounts, such as mortgages, car leases and credit cards. It’s a level of transparency that we’ve not seen previously, and comes with benefits & disadvantages for would-be borrowers.
On the downside, the odd late credit card payment is no longer OK, and out in the open for all to see during an application process. Many lenders’ first screening step is to run an applicant through a credit scoring process, and this is top of the list of boxes to tick. Additionally, “forgetting” that a credit or store card exists amounts to “non-disclosure” and can result in an automatic decline.
On the flip side, some lenders have started to use the Repayment History on the reports as a source of truth, allowing them to do away with the collection of manual bank statements to prove credit worthiness.
Shown here is an example of what the lenders will see in relation to every credit account ever held.
The transparency is also paving the way for specialist lenders to fill the gap that the major banks create by this hard and fast approach. Borrowers will find up and coming lenders promoting great rates for those that find themselves on the wrong side of the ledger. The trick is knowing who will accept what without too much rate penalty.
The other trick to watch for from a reporting, and borrowing capacity perspective, is the use of Buy-Now-Pay-Later providers such as After-Pay and Zip. While many assume it as a great service rather than using it to prop up cash-flow, the lenders largely take a different view. And while After-Pay continues to play cat-and-mouse with the regulators over what rules they can avoid, many have commenced participating in the reporting regime. Whether they appear on the report or not, lenders who find these transactions in bank statements tend to assume a reliance on 3rd party borrowing and score it accordingly, both from a credit-worthiness perspective, as well as borrowing capacity. For those needing to maximise their borrowing capacity, it is best to err on the side of caution and avoid it completely prior to a Home Loan application.
For more tips & advice, contact Lanie Conquest or Nicola Tucker at Surf Coast Finance
With over 40 years combined banking & financial services experience, they help local families & businesses make smart financing decisions.
Ph: 03 5264 7702