New rules will affect how Australians apply for credit
How banks approve applicants is about to change, but most Australians don’t even know it.
New rules will soon affect how Australians are approved or denied when applying for a credit card, loan or mortgage. However, most Aussies are unaware of these changes and how it could impact their likelihood of approval.
Following a survey of 1,000 Australians in March, credit rating bureau Experian said that two-thirds of Australians are unaware of the upcoming changes to national credit reporting requirements, which will give lenders access to a lot more information about an applicant’s financial history.
Currently, lenders only share negative data, such as defaults and bankruptcies, to other providers. However, due to amended privacy laws under the new comprehensive credit reporting system introduced in 2014, we will see positive data including repayment history also shared with credit reporting bureaus and lenders. As such, Australian credit bureaus will have access to up to 24 months of your credit repayment history.
At the moment, lenders have limited visibility of a customer's financial situation. The information they have access to includes how many previous applications they’ve submitted, the type of credit applied for, the amount applied for and if they've defaulted on their payment obligations, have declared bankruptcy or have a court judgment filed against them. So, the upcoming changes and lender’s access to more information is good news for applicants who regularly pay their credit card bills on time.
While this information isn’t being directly shared among lenders, it is accessed by major credit bureaus including Experian, Equifax (formerly known as Veda) and Dun & Bradstreet. As most banks work with these bureaus to access your credit history, this will make a big difference to how you’re considered when you apply for credit cards, loans and mortgages.
So, now that you know the changes are in motion, what can you do to improve your chances of approval when applying for a new line of credit?
Now that credit bureaus can see your repayment history, it’s never been more important to pay your credit card bills on time. This includes making the minimum repayment each statement period, which is usually 2% to 3% of your total balance.
Understanding exactly what bureaus and lenders can see is extremely important and can help you prepare your finances to improve your chances of approval when applying for a line of credit. As well as making regular repayments and ensuring your account is in good standing, you should also request a copy of your credit score before you apply.
According to the Experian survey, 71% of Aussies had never checked their credit score claiming that they didn’t know how, didn’t know what a credit score was or simply didn’t care. As your credit score is an indication of the health of your credit history and can impact whether or not you’re approved for a line of credit, it’s worrying that most Aussies don’t bother to check theirs. You can request a free copy of your credit score here.
Overall, this inclusion of positive data in credit checks is an encouraging step forward for Australian credit customers. It gives credit providers a more balanced view of their customers' financial situations and will hopefully create an environment of fairer lending.
For more tips on how to improve your chances of approval, see our guide on how to apply for a credit card.