Previously, when applying for a home loan, banks and credit providers would only look at your ability to service the mortgage; so, basically, your income. That was before the introduction of Comprehensive Credit Reporting (CCR). Now, borrowers are assessed on their full financial history, including income, expenses, defaults and even the person's record and reliability to pay a bill on time.
Also known as Positive Credit Reporting, CCR makes recording positive credit information on credit histories mandatory. The rollout started with Australia's Big Four (1) banks which were required to share all their credit data by the end of September 2019. By July 2021, all financial institutions offering loans will have to comply with CCR. But what does it mean for potential borrowers?
Why Comprehensive Credit Reporting can help you negotiate the best home loan
Historically, a person's credit report or score was all about bad marks. However, the introduction of Comprehensive Credit Reporting, which determines whether an individual is financially responsible or not, completely changes the story. Firstly, thanks to the positive credit data now being tracked in credit reports (bills paid on time, low balance on credit cards, debts paid off, etc.), financial hiccups will become easier to recover from. More importantly, responsible consumers should see their credit scores get even better, giving them more leverage when negotiating a loan from a financial institution.
With the CCR system, lenders will have a broader understanding of an individual's ability to repay debt and will be able to assess their risk profile more comprehensively. This change will in-turn see mortgage providers start chasing the "good pupils". They will want to attract and retain the safest borrowers, the ones who appear to be financially healthy, but who are not necessarily the ones with the highest income or buying power.
Negotiate a better interest rate and borrow more
The introduction of Comprehensive Credit Reporting will make the power progressively shift from banks to borrowers. The financially mature, responsible consumers will finally get a chance to be rewarded for their good marks. Thanks to CCR, new opportunities will arise for individuals able to prove healthy financial behaviours. By showcasing a good credit score, they will have the power to capitalise on competition to negotiate better rates, and potentially, also borrow more. Similarly, home owners should look at the opportunity to refinance their mortgage.
With these changes in mind, people who might not be ready to buy in 2020, but who are planning to invest in the next five years, should anticipate their move. How? By making sure they do everything in their power to improve and maintain the best credit score possible. This way, they will guarantee the best conditions for their future loan.
What’s in store for 2020 on the real estate market? We identified the main trends for the coming year. Download our 2022 Real Estate Trends white paper to find out more more.
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