Credit Reference – Digital Finance Analytics (DFA) Blog

Australian women in the dark about their credit history

Australian women are missing opportunities to optimise their credit health and make themselves look good to lenders, according to research from consumer education website, CreditSmart.

The study was conducted online between 15-18 March 2018, with a sample size of 1,026 of Australians aged 18 years and older throughout Australia, out of which 51% of the sample were women.

A huge 89% of women are unaware of changes currently happening in the credit reporting system, and a third of these feel the changes will not impact them in any way. A quarter of Australian women are completely unaware of what a credit score is, and 65% have never checked their credit report.

Rebecca Murray, General Manager of Australian Retail Credit Association (ARCA), which founded CreditSmart, said the results showed a worrying gap in women’s knowledge of their credit health.

It is really important for women to be across these upcoming changes, so they can take advantage of the changes rather than potentially be negatively impacted”, Ms Murray said.

“Going forward, your credit report will become a personal asset which will hold you in good stead for when you need to take out a loan, as lenders will be able to track your account repayment habits on your accounts to assess your creditworthiness,” Ms Murray said.

It is important to understand that your credit score and credit report are both indicators of your credit health. Our research found that men are overall 10% more likely to check their credit report compared to women.

The research, undertaken by YouGov Galaxy, was done ahead of important changes to Australia’s credit reporting system which will see lenders move to comprehensive credit reporting (CCR). As part of this, the Government has introduced legislation that will mean the four major banks will be required to supply half of their customers’ comprehensive credit reporting data with credit reporting bodies by this September and the rest by September 30 next year, to ensure lenders have a complete picture when those individuals apply for credit.

Optimise your credit health

CreditSmart research found that 55% of women either don’t know or have incorrect perceptions on the cost of accessing a copy of their credit report.

Ms Murray stresses the importance of knowing your credit rights, which includes free access to your credit report annually from each of the credit reporting bodies.

“How to use credit responsibly is everybody’s business, irrespective of gender. People with good credit health will be rewarded with more choices of loan products and possibly lower interest rates, so get to know your credit report, fix it if there is something wrong and pay your accounts on time to get the credit you want, when you need it,” she added.

For information on how to optimise your credit health, Ms Murray suggested women should go to the CreditSmart website (http://www.creditsmart.org.au), set up by credit experts to help you understand how recent credit reporting reforms affect you.

CreditSmart has five top tips for keeping your credit report healthy:

Know what’s on your credit report: You can get a free copy of your credit report annually from each of the three main credit reporting bodies Experian, Illion (formerly Dun & Bradstreet), and Equifax.
Keep track of your credit score: Your credit score is like a summary of what’s on your credit report and can give you a quick indication of how credit providers see you. For free credit scores you can refer to CreditSmart.
Don’t let forgetfulness make you miss payments: Talk to your credit provider about setting up an automatic payment, i.e. direct debit, to make sure your regular payments are paid on time.
Fix anything that is incorrect: If you think something is incorrect, you can ask any credit provider or credit reporting body for help to fix that error, so long as they hold some kind of personal credit information about you. This is a free service.
Only borrow what you need: Having too much credit may make it harder for you to get credit for what you really need. If you have more credit than you can comfortably afford, try to close any accounts that you don’t use or decrease your credit limit. Your credit report will show credit providers how much credit you have available, even if you don’t use it.

What makes up your credit report? Hint – it’s not what you think

Research from consumer education website, CreditSmart, has found that many of us hold misconceptions about what goes into our credit report, and what credit providers look for when checking a credit report.

The CreditSmart website is owned by the Australian Retail Credit Association (ARCA), which is the peak body for organisations involved in the disclosure, exchange and application of credit reporting data in Australia. ARCA’s members are the most significant credit providers including the four major banks, credit reporting bodies (CRBs), specialist consumer finance companies, and marketplace lenders. A list of companies that support the CreditSmart education campaign is listed below.

They say that almost nine in ten Australians (88%) understand that banks and lenders check their credit report when they apply for a loan or credit.

Mike Laing, CEO and Chairman of ARCA, which founded CreditSmart, said that, unfortunately, too many people in Australia misunderstand their credit report and the information it contains.

“Accessing credit is part of everyday life and yet alarmingly, most consumers are unaware of the information included in their credit report. Your credit report will influence whether your application for credit or a loan is approved as your credit report forms part of a credit provider’s assessment of your application for credit or a loan,” said Mr Laing.

The research, undertaken by YouGov Galaxy, was done ahead of the upcoming changes to the credit reporting system. Known as comprehensive credit reporting (CCR), from July 2018, the four major banks will be required to share 50% of customers’ data with lenders, to ensure a complete picture.

What does my credit report include?

A huge 63% of Aussies believe how much money they make is included in their credit report. Further, 40% think the balance on their savings account is also on their credit report.

“Your income and bank balance isn’t included in your credit report. When you apply for credit or a loan, the lender will ask you about your income, expenses and your financial assets, as all of this is taken into consideration, but it will not come from your credit report.

“You could have a lot of savings in the bank, but a bad credit report because you were careless about paying your financial accounts on time”, said Mr Laing.

Separately, more than half of Australians believe that gender and marital status are included in their credit report, and one-third think that their place of birth and car insurance claims are also shown. All of these are incorrect.

A further 63% of consumers thought their credit report already shows whether or not they make their monthly credit card and loan payments on time. This is a change that is only starting to happen now as part of CCR.

According to CreditSmart, a credit report is made up of:

Identifying information (e.g. name, address, date of birth, employment and driver’s licence number)
Information about the credit accounts you have and, for credit cards, personal loans, mortgages or car loans, your repayment history on these accounts over the last two years
Credit applications over the last five years
Default information (if any) over the last five years (payments at least 60 days overdue)
Personal insolvency information and serious credit infringements (if any) for up to seven years

Who can access my credit report?

While most of us know that a bank or lender will look at our credit report when we apply for a loan, many are unaware that our credit report can be checked when we apply to open a new gas or electricity account (46%) or contract a mobile phone (46%).

“Most credit providers, which can include gas, electricity and phone providers, will carry out a credit check to find out how you’ve handled your debts in the past – something to keep in mind,” said Mr Laing.

Your credit report can’t be accessed when you apply for a job or take out or make a claim on insurance, which is not well known by Australians.

According to CreditSmart, your credit report will likely be requested from a credit reporting body by a credit provider when you:

Apply for a loan from a bank (or any other finance provider)
Apply for a store card (e.g. when you buy a TV on interest free finance)
Rent items like a TV, fridge or computer, but not home rental
Apply for a car loan
Buy a mobile phone on a post-paid mobile plan
Sign up for a phone, gas or electricity account

Checking your credit report frequently

Mr Laing stresses the importance of checking your credit report annually.

“A popular misconception is that checking your credit report can negatively impact your credit score, but that is not true. As a security measure your credit report will show who has looked at your credit report, including you, but this is done to protect your privacy and is not shown to a credit provider when you apply for a loan.

“Every consumer should check their credit report annually. Monitoring your credit health regularly – like your physical health – lets you confirm you’re managing your credit well and are able to access credit when you need to,” concluded Mr Laing.

For more information on how to get your free credit reports, and to understand what is on them or fix any errors, consumers should go to http://www.creditsmart.org.au website, set up by credit experts to provide clear information on the credit reporting system to assist consumers to optimise their credit health.

Companies that support the CreditSmart education campaign include:

ANZ
Bankwest
Bendigo and Adelaide Bank/ Delphi Bank
BOQ
Citi
Commonwealth Bank
Compuscan
Credit Savvy
Credit Simple
CUA
Customs Bank
Experian

Firefighters Mutual
Bank/Teachers Mutual Bank
Genworth
GetCreditScore
Good Shepherd Microfinance
HSBC
Keypoint Law
Macquarie
ME Bank
MoneyMe
MoneyPlace
NAB
Now Finance

Pepper Money
Police Bank
QBE
SocietyOne
Suncorp
Toyota Finance/Hino Financial Services/Lexus Financial Services/Power Torque Financial Services
Unibank
Westpac/ Bank of Melbourne/ BankSA/ StGeorge/ RAMS

New rules mean lenders see ‘positive data’ when assessing loans

From The Real Estate Conversation.

From the end of this year, ‘positive data’ will be available to lenders to help them assess loan applications.

The federal government has fast tracked changes that will allow greater data sharing between banks, meaning borrowers will be able to be assessed on how well they have repaid loans in the last two year.

“The government’s move to fast-track positive data sharing will mean more Australian borrowers will see the benefits of a fairer system much sooner,” Susan Steele, credit bureau Experian’s Australia / New Zealand managing director.

The change, which was recommended by the Productivity Commission, is particularly relevant to those seeking approval for home loans.

How do the new rules work?

Currently, when borrowers are applying for credit in Australia, lenders ask for permission to access the borrower’s credit report to help them asses if they will be able to repay the loan. Only defaults are visible in these credit reports.

The new rules will mean that lenders will be able to see ‘positive data’ as well, for example, lenders will be able to see how well borrowers have repaid credit card, personal loans, or mortgages over the last two years.

The data will also show how many credit accounts someone has, and how much credit they have in total.

What impact with the changes have?

The changes are likely to see credit scores change, sometimes dramatically.

“Your next application may be assessed differently with lenders for the first time being able to see how well a borrower has paid back credit over the previous 24 months,” said Steele.

“This will include historical data coming online from credit cards, mortgages and personal loans.”

Steele said most Australians are very good at repaying credit. Experian’s data showed that around 80% of Australians have a clean record of not missing a repayment.

“Aussie borrowers are likely to see their credit scores increase or decrease in the coming weeks and months,” said Steele, as “new data about how many credit accounts they have open and how much the combined credit limits they have is factored into their scores for the first time.”

The new data is likely to have far-reaching impacts across a range of credit decisions, said Steele, including loan approvals and declines, changes in interest rates, and changes in lending limits.

“Industry research suggests around 40% of decisions about credit applications will change, in comparison to when only negative data was shared,” she said.

“Overall approval rates from banks are tipped to increase by 10-15%,” she said, “with research showing the share of bad loans could fall by as much as 45% when positive data is included in credit decisions.”

“Positive data sharing will also assist others to avoid entering into unmanageable levels of debt and getting into financial difficulty.”

Steele said borrowers can improve their credit score by “diligently making repayments on time”.

What to do if you are applying for a loan

Steele advised that borrowers, and those hoping to have loans approved, should check their credit scores regularly, and make sure new positive data is being factored in.

“The best thing home hunters can do is check their credit report before applying for a mortgage, something which, worryingly, our research shows seven in ten Australians admit to never having done. Consumers can check their score at any time, free of charge,” she said.

Positive data sharing is already in operation in 18 different countries.

“From our experience,” said Steele, “in the 18 other countries where we operate a credit bureau, positive data sharing is a much fairer system”.

First-home buyers

Steele said, “It may help potential first-home buyers who don’t have a long credit history, to be approved for finance, where previously they may have been declined due to a lack of insight into the way they handle their finances.”

Faster credit decisions with real-time technology

From Fintech Business.

Credit providers will need to embrace newer technologies and real-time data processing in order to meet changing client needs, writes Experian’s Suzanne Steele.

Over the last decade, the digital transformation of the banking sector has accelerated dramatically, and the pace of change is showing no sign of slowing.

Recent research data shows more than 1.2 billion people are banking on their mobile devices today, a number set to increase to over two billion by 2021.

Competition from agile new arrivals to the market, combined with a need to enhance the customer experience, are compelling credit providers to improve their range of services and reduce the time it takes to make credit decisions.

Gone are the days when a discussion with the local bank manager was the only option.

Dissatisfaction with traditional systems that fail to meet the instantaneous needs of the modern-day customer already has some Australians looking to fintech start-ups and alternative lending sources.

Millennials report convenience anywhere, any time as the primary driver for choosing non-traditional finance providers, according to recent Telstra research.

This highlights that many of today’s consumers live in a world of digital banking and expect to be able to have their banking needs met at any time, in any place and on any device.

There are signs consumer pressure is shifting the massive cogs of Australia’s financial services industry, slowly but surely adjusting to the demands of today’s hyper competitive 24/7 global economy.

The National Payments Platform (NPP) rollout in late 2017 will provide Australian businesses and consumers with a faster, more flexible and data-rich way to transfer funds within seconds.

In the NPP world, an Australian credit shopper can receive funds from friends, family or peers almost instantly.

Australian credit providers will have the same ability to almost instantly fulfil a customer’s credit wishes, but they will also need the right tools in place to assess customer risk with the same level of immediacy.

In order for credit providers to meet the evolving demands, real-time automated decision-making must become the new norm across the credit industry, enabled by access to a variety of internal and external databases.

What are the databases and insights credit providers need at their fingertips to make well-informed decisions?

In order to accurately, quickly and confidently make a ‘yes’ decision anytime, anywhere, a credit provider needs to first answer these five fundamental questions:

Is the applicant who he or she purports to be? (ID data)

Will the applicant likely be fraudulent? (fraud data)

Is the applicant too risky? (credit data)

Can the applicant afford to repay the loan? (servicing capacity data)

If the applicant has a property, is it worth what they say it’s worth? (asset value data)

Historically most credit providers have answered each of these questions separately, using disparate and unconnected systems. For example, the bank will access an existing customer’s profile on their CRM database, but will also look at external data provided by a credit bureau or a shared fraud database.

The result is a lengthy process that delays credit decisions and results in a poor customer experience. In an increasingly saturated market, consumers’ ability to access credit seamlessly will likely be a key differentiator.

A one-stop shop

Emerging technologies promise a faster and more customer-friendly alternative to these clunky systems of old, offering access to a wide range of separate databases on demand and as part of a singular process.

As banks up the ante in their adoption of cloud-based services, a more flexible, collaborative technology ecosystem is emerging.

These technologies enrich a bank’s own customer data with third-party credit data, identity information, fraud insights and property data, and make it all available online and in real time.

With integrated workflow and decisioning processes, banks can fast track applications from existing customers and prompt a request for more data from new customers.

This enables credit providers to deliver a credit decision within seconds, reducing the number of customers who drop-off midway through the application process due to the lengthy questions and delays.

However, it also ensures credit offers are more accurate, based on a holistic approach to a customer’s financial situation. For the bank, this reduces risk, streamlines operations, and enables it to offer efficient and competitive products and services.

A digitised approach also addresses an ongoing concern for credit providers.

In 2009, to meet ASIC’s responsible lending guidelines, the onus was put on lenders to request evidence such as pay slips or financial statements, to support credit applications.

This process significantly delays the processing of applications. However, by applying the same principles in data integration, banks can now automatically access bank statements to fast track their evaluation of the ability of a consumer to service a loan.

Developing an effective data hub with real-time decisioning software future-proofs a bank, enabling an agile response to both future regulatory changes and transformations to the market.

Such a capability results in a more positive experience for customers and delivers much improved efficiencies and business performance for credit providers.

Suzanne Steele is the managing director of Experian for Australia and New Zealand.

Do Younger Australians Understand Credit?

Australia’s credit reporting framework has recently undergone a fundamental shift away from a negative only reporting system to comprehensive credit reporting (CCR). Under the changes, lenders can report additional information about borrowers including repayment history such as whether a borrower has paid all credit obligations in a given month, and whether payment was on time, late or missed.

A newly released report examines the knowledge and attitudes of millennials (consumers born between 1980 and mid-2000) towards credit.

It also considers future implications of the shift to CCR in Australia, including the potential use of non-traditional data to assess creditworthiness. Millennials comprise almost a quarter of the population and are the fastest-growing segment of the consumer lending market in Australia. As millennials apply for credit cards, personal loans, car loans and home loans in coming years, lenders will have a range of new tools to assess credit risk and determine millennials’ access to credit.

This research was commissioned by the Customer Owned Banking Association (COBA) and aims to stimulate discussion about the implications of changes to credit reporting for millennials among Australian consumers, policy makers and industry.

This report is based on a three-stage study conducted over a 12 week period, which relied on a primarily qualitative approach. This included: a comprehensive review of domestic and international literature, 15 semistructured interviews across seven key informant groups, and two focus groups with 12 millennials. The findings presented are strictly informed by the literature and the qualitative data collected; they do not reflect the views of Good Shepherd Microfinance.

Despite being the fastest-growing segment for consumer loans, global and domestic research shows that young people are more likely to be ‘thin file’ or ‘credit invisible’ and are overrepresented among financially excluded people. Credit providers rely on previous credit history to make decisions, yet without any prior credit usage, providers have limited to no visibility of the creditworthiness of this group. Their lack of access to mainstream financial products may also make this group vulnerable to predatory lending products.

Our study finds that millennials have a lack of awareness of CCR, hence it will be imperative to raise their awareness to ensure the benefits of CCR are realised. Millennials do not know what data will be collected about them and they have little idea of how their behaviour will impact their creditworthiness now and in the future. Nearly two-thirds of millennials (64%) have never heard of, or do not understand, the term ‘credit report’, according to consumer research commissioned by COBA. Targeted education and transparency of credit assessment decisions will therefore be essential.

This report divides millennials into two distinct groups — the young millennials (18 to 24 years of age) and the older millennials (25 to 35 years of age). The difference between the young and the older millennials lies in their technological capabilities, their attitudes, and the degree to which they are willing to share their personal information digitally. Some millennials — especially young millennials — could more readily see the benefits associated with having a better credit rating as an incentive or reward for ‘good’ credit behaviour. Others had some reservations, seeing the potential for some groups (such as young millennials, those with low incomes, migrants, and early-school leavers) being disadvantaged as they were more likely to be creditinvisible. However, some studies argue that these groups may benefit from the introduction of CCR if payment behaviour from other sources is able to be included in credit-making decisions.

Overseas experience of credit reporting strongly supports the potential for non-traditional or alternative data to complement, rather than substitute, traditional credit data used to assess creditworthiness. Use of this data is particularly relevant for millennials as they generate broad alternative data sets about themselves through their digital behaviours including online payment and social media activity. Using alternative data to determine creditworthiness can open the door to better credit access for many millennials. As a first step, including utility and telecommunications data in credit reporting could facilitate new to credit consumers, such as millennials, to build a credit history without the necessity of borrowing.

More data captured and used by credit providers may mean greater opportunities for millennials and others who are ‘thin file’ or ‘no file’, but it also brings with it risks, particularly for young people who are generally unaware of how this data is captured and used. Potential risks include concerns that over-indebted consumers could be disproportionately impacted; data quality and integrity could lead to inaccurate or misinterpreted credit decisions; privacy and security of personal data; potential use of data for unauthorised purposes e.g. identity theft or fraud; cross-industry differences in data-capture methods and requirements; treatment of hardship or repayment history information; risk-based pricing; as well as a fear of increasing financial or social exclusion resulting from loan defaults. Millennials are a generation that is willing to take control of their personal information and CCR may provide them with an opportunity to do so. However, their lack of awareness and knowledge gaps in relation to credit puts a responsibility on all stakeholders to ensure that these are addressed through targeted education. Having more engaged and responsible consumers also benefits lenders, and can provide a positive flow-on impact on the economy as a whole.

Your Social Media Posts May Soon Affect Your Credit Score

From Forbes.

In the US, there’s a new reason to be careful when updating your Facebook status. As reported on Investors.com, talking about a weekend of debauchery might lower your credit score.

The Fair Isaac Corporation (or FICO), a credit rating agency, is implementing new strategies for assessing a consumer’s creditworthiness. In addition to looking at the information offered on social networking sites, the agency will also be looking at smartphone records.

“If you look at how many times a person says ‘wasted’ in their profile, it has some value in predicting whether they’re going to repay their debt,” FICO CEO Will Lansing told the Financial Times.

TransUnion, another credit rating company, is also adding ways to determine a credit score. While the agency will not be using social networking websites, they will add data from payday lending businesses and club memberships.

The agencies both said the new data will supplement the current assessments tools, which include credit card and loan records.

The new credit assessing system is not necessarily intended to negatively impact credit scores. The new method can also give consumers access to credit. FICO reported that nearly 18 million Americans don’t have access to credit because they had negative reports in the past. An additional 25 million have never had credit.

In the report, FICO said, “Using the right alternatives to traditional credit bureau data, lenders can reliably identify millions more consumers who qualify for credit.”

TransUnion says its new CreditVision system has been able to approve an additional 24% of consumers for auto loan lenders.