Is Australia adopting US-style credit scores?
Veda's rebranding to Equifax may bring along more changes than expected.
Australia's most well-known and largest credit provider, Veda, will be rebranding to Equifax as of today. The rebrand comes following an acquisition by the US credit reporting agency, announced in February 2016.
While it may appear on the surface to be a simple name change, perhaps a new coat of paint, it may indicate a larger shift towards US credit scores.
According to the Sydney Morning Herald, head of the international business for Equifax John Hartman says the company is considering IT systems to roll out here as well as incorporating extra data points.
"It is our hope that we can help accelerate the adoption of the new data sources to create new products and to meet new needs of customers," he said. Data such as employment, income and fraud is currently collected in the US, and Hartman says Equifax will look at whether it makes sense to do the same here.
US vs Australia
There have been no announcements yet, but a move to a more comprehensive US-style of credit scoring isn't that far fetched. In March 2014, Australia moved towards a comprehensive credit reporting so that repayment history, credit limits, the type of account held and other information was now included.
While this gave credit reporting bodies more information to calculate your score, it pales in comparison to the amount of data US credit bodies hold. Repayment history and credit utilisation, or how much of your credit limit you actually use, goes towards determining your score.
In the US, credit scores also have more effect on your life because lenders used risk-based pricing. This means the better your credit the lower your interest rate. Even a score difference of 20 points could change your interest rate by a whole percentage point. While still in the early stages, US credit bureaus are also considering using social media data to inform credit scores.
Why would Australia change its scores?
Risk-based pricing is still in its infancy in Australia and is in fact only used by peer-to-peer lenders. However, the fact that some lenders are using credit scores to calculate interest rates has fuelled the data debate: more data being used to calculate a consumers' risk means better decisions.
While the Big Four banks are receptive to open data, the security concerns mean it is still a long way away. So, as the banks aren't going to share their data just yet, the argument can be made that a more informed credit score could help risk-based pricing lenders make better decisions.