Comprehensive Credit Reporting; the Nuts & Bolts

We have previously established that a credit score matters,  that it is essentially your financial CV or form guide to determine whether you are financially-viable and worthy of taking on credit, and more importantly meeting financial obligations in the eyes of registered credit providers and banks. To find out what a credit score is and how to determine your personal credit rating follow the link here before reading on to discover more about Comprehensive Credit Reporting.
NZCU South is the first credit union in New Zealand to ‘Go Live’ with Comprehensive Credit Reporting (CCR).
A basic credit score could be said to focus on the negative. It would tell your finance provider potential pitfalls including the number of times you’ve applied for credit, missed payments, loan defaults or any other financial mishaps you may have had. This would have influence in the lender’s decision-making process – at the very least you may receive heightened interest rates or even be denied the opportunity to an approved loan altogether. In a nutshell, Comprehensive Credit Reporting (CCR) looks at both the positive and negatives regarding one’s credit history. As stated on the Equifax website; having been part of legislation in New Zealand since 2012, it expands the information that credit reporters can collect and in doing so, provides a more balanced view of an individual’s credit history. Prior to 2012, credit reporting was considered ‘negative’ or ‘adverse’ information.

Historically ‘negative’ data was reported to Credit Bureaus, which meant we would inform them when borrowers defaulted on loans. Moving forward, we will now report on the current status of every loan, every month during the term of the loan. This allows consuming credit providers to see not only the bad parts of a borrowers history, but also the good parts. Below is an example from Credit Simple, and Illion service showing a list of repayment history on a mortgage, along with the corresponding explanation of what the records mean.

The Good News;

  • CCR is great for borrowers, whether you believe you have a poor history or not. It allows for ‘rehabilitation’ or positive change in credit behaviour to be recognised.
  • Good news for those new to credit. If you’ve been paying your phone or utilities on time then the CCR covers this instead of neglecting the fact that you may not have utilised ‘standard credit’ (e.g. personal loans) in the past.
  • CCR data may allow credit providers the chance to approve customers that may previously have been declined.
  • Lenders will have a better overview of a members debt commitment, instead of just enquiries. 

Significance of Repayment History

CCR offers credit providers a valuable insight into their customers credit behaviour. Repayment history can also act in the favour of the consumer as it offers the potential borrower the ability to demonstrate positive change in credit behaviour over a sustained period. This will work to show that one payment default is not going to define someone’s ability to gain credit for the rest of their life. CCR will allow us to identify that someone may have experienced a payment default which has then been followed up with 3-4 years of positive repayment history.  It can be noted here that payment defaults remain on your credit report for 5 years.

Even if you don’t have a credit score of 800+, the new system of reporting gives you the chance to redeem yourself, to rectify bad habits and prove your ability to meet financial obligations. 

By increasing your credit score, you can improve your chances of receiving a loan at a lower interest rate. To improve your score (even with a poor history) try to make credit card and utility payments on time every month. Do not miss any payments and this will show lenders that you have control of your financial processes and will be less likely to default on a loan.   It can be noted here that your credit report details monthly payment history up to 24 months, covering everything from credit cards and mortgages through to phone contracts and utility bill payments. Repayment history information can only be provided and accessed by the following agencies:
  • Registered Credit Providers (Finance Companies & Banks)
  • Telecommunication Providers
  • Utility Providers (e.g. Electricity companies)
  • Insurers (limited access)
As the old saying goes past behaviour informs and helps predict future action. Fundamentally, this is a core premise of CCR with the exposure of potential consequences, positive and negative for both the lender and the borrower. From a lenders point of view, with CCR providing monthly updated data this offers an insightful snapshot into the potential borrowers’ financial behaviour and repayment-ability. Likewise, for the borrower, this means they can sort their action by presenting a good financial track record of paying their bills on time to compensate for any financial mishaps that may have previously occurred. Basically, it is about getting on track and ‘rehabilitating’ or remodelling your financial behaviour. CCR recognises this and allows for reward by way of giving financial institutions the freedom to offer personal loans in instances that may not have previously presented themselves.