If you don’t know about Australia’s new privacy laws, you might want to pay attention – the changes to credit reporting are arguably the most important change our personal finances in a generation.
The new system, which is part of what the Australian Information Commissioner calls the biggest changes to Privacy Laws in 25 years, will affect your ability to get anything from a home loan to a mobile phone plan.
From March 12, the information available on your credit file, which is the way banks and other lenders decide whether you can afford to pay back the debt, will be much more detailed.
Until now the system has been opaque. Lenders had been able to see if you had defaulted or not, but not how you manage your credit. Now they will be able to see if you make payment late or on time, as well as other details.
If you hadn’t heard of credit reporting or didn’t know how it worked, don’t worry. You aren’t the only one. Research by the credit industry peak body Australian Retail Credit Association (ARCA) shows almost 60 per cent of consumers have not heard of credit reporting. Credit agency Dun and Bradstreet say only about 10 per cent of Australians know about their credit file and have checked it.
To combat the lack of public awareness a website has been set up to educate the public about the overall changes to the privacy laws. If you are one of those who needs to brush up, here’s what you need to know.
The changes from a “negative reporting” system to “comprehensive reporting” will bring Australian into line with the rest of the OECD. The Privacy Act sets out the rules about what can be in your credit report and how it can be accessed and used.
Along with greater transparency and “positive” information, the changes to the Privacy Act also put greater restrictions and penalties on how major companies use data.
What it means for consumers
For consumers it means that how you manage credit will now be considered when applying for a loan.
Australia will have comprehensive credit reporting, showing “positive data” such as the types and number of accounts opened, the amount of credit available and the timeliness of payments.
This means, for example, that as well as showing applications for credit, your report will now reveal whether you were successful or not. Likewise, while the report always showed if you defaulted on a bill or payment, now it will also show if you have paid on time.
However, there’s no need to panic. Dun and Bradstreet’s Steve Brown says you won’t be blocked for a loan after one late repayment – and there is a five day grace period.
“It’s unlikely where you miss a single payment on a credit facility that will have any significant impact on their ability to gain credit and that’s because behaviorally it could be an inadvertent missing of a date or problem with direct debit. What lenders are looking for is behaviour that suggests they would be unable to meet repayments.
What should you do
1. Check your report
The first piece of advice from consumer groups, credit industry and the Privacy Commissioner Timothy Pilgrim is get your credit report.
“Unfortunately a lot of people never think about their credit file until they go to get a line of credit and find that there is a problem or information that indicates they would not be a good risk,” Pilgrim says.
Under law everyone is able to access their credit report once a year for free. You can do this through agencies like Veda. You can check and apply for corrections if the information is wrong.
2. Pay bills on time
More than ever ensure you pay your bills and repayments on time – a series of late payments could stop you getting a loan. Likewise years of timely repayments could override a default in the eyes of lenders.
Budgeting app Pocketbook said that 12 per cent of all bills were paid late – so a significant proportion of people currently pay bills late by habit already. In fact, they said this “is perhaps the most significant legislation change to your personal finances in your lifetime“.
3. Keep track of your applications
Dun and Bradstreet’s Brown also recommends to keep track of the credit you apply for and why.
“Don’t apply for credit unless you intend to take it up; do your shopping around first and the reason I say that is because lenders also take into account how many credit applications are listed on your credit file. Some lenders take a large amount of applications in a short period of time as indicating a higher risk.”
4. Talk to your lender
Lastly, industry and consumer groups advise if you are struggling to repay – talk to your credit provider. There may be a way to sort out your issue before you are late or default.
All agencies have warned against companies claiming to “fix” your credit profile. Consumer Action Law Centre CEO Gerad Brody says there is no service these organisations, which charge hundreds of dollars, provide that you cannot do yourself.