You may have survived Black Friday and Cyber Monday, but how will your credit score cope with the Christmas onslaught, People’s Choice Spokesperson Stuart Symons asks.
The answer may lie in Comprehensive Credit Reporting, a new scheme that provides more information about positive consumer credit behaviour, not just the defaults.
“At this stage 90% of financial institutions have started handing over credit performance data, which means now is the ideal time to start looking at your own credit health,” Mr Symons said.
“Other financial institutions and utility companies are likely to follow suit, which means your credit score will reflect not just defaults, but also your positive credit history. This means now is the time to think seriously about what your credit history will say about you over the next two years and take the necessary action to improve what potential lenders will see.”
Mr Symons said the introduction of Comprehensive Credit Reporting is a positive for both lenders and borrowers.
“A window into a person’s full credit history, not just their negative behaviour, will help financial institutions be better informed which should reward people with a positive credit history. It will mean that missing a mortgage or credit card payment once would be weighed up against the fact that you have never missed another payment or that you usually pay ahead rather than being an automatic strike against you,” he said.
“For people who feel their credit history is not going to tell a positive story, the new system gives them the opportunity to make some changes and improve their credit score.
“It was hard to break free from the old fashioned way of credit scoring which only reported your negative behaviour – it looked at your employment history, the length of time you have lived at your address, your outstanding debt and any defaults and judgements. It also considered how many times you inquired about borrowing money or taking out a credit card, but did not take into account whether you took out the loan or actually applied for the credit card, and it did not show any positive repayment history or behaviour. Comprehensive Credit Reporting is much fairer.”
Mr Symons said there are steps people can take now to improve their credit health.
Get a check up
“Everyone should assess their credit reputation with an annual credit health check up,” Mr Symons said.
“Request a free copy of your credit report from credit bureaux Equifax, Illion and Experian every year to understand the information they’ve used to calculate the credit score they provide – or you can sign up for their apps for more frequent updates. You will also be able to see if you have any credit cards open that you may have forgotten about or if there’s any missed or late payments – including any that have been caused by identity theft – incorrectly listed which can affect your score.
Make healthy choices
“This isn’t just about past behaviour you can use it to think about the impact of your current payment behaviour,” Mr Symons said.
“Only have debt you feel comfortable with and that you know will not be a burden if an unexpected expense or situation should arise. And get into the habit of paying all your bills – not just loans and credit cards – on time or pay ahead or in full. Under Comprehensive Credit Reporting, defaults stay on your report for five years even if they have been paid off and late payments will reduce your credit score.
“If you do not think you can make a payment on time it is important to contact your financial institution to let them know before the due date and to discuss your payment options.”
Mr Symons suggested considering where and how you access credit as the source could affect your score.
“If you have never had credit and are looking to build or improve your credit score, consider a low-limit credit card or a personal loan rather than quick fix lenders. Pay-day lenders and the new breed of buy-now-pay-later lenders should be avoided because they could be considered as negative credit behaviour.”
Enjoy the benefits of a healthy score
“The good news is that even if you have damaged your credit score in the past it can be rebuilt over time with careful management because your credit score will be affected most by your recent patterns of behaviour,” Mr Symons said.
“People with a healthy credit history backed by a good credit score will stand out to lenders when applying for a loan or credit card. And as Comprehensive Credit Reporting spreads, people who understand their credit history and can back it up with a positive credit score will find themselves with the power to better negotiate with lenders.”
Learn more about Comprehensive Credit Reporting here.