What the new credit reporting changes will mean for you
New credit reporting rules that come into effect from July 2022 will change what is shown on your credit report, especially when it comes to hardship repayments.
Here's what those changes are and what they mean for you.
Parliament recently approved changes to the Privacy Act that improve the information that can be included in credit reports and give consumers better access to their credit reports. These changes:
- Enable each Australian to access their credit report free of charge every three months (previously every 12 months),
- Make it compulsory for credit reporting bodies to provide a credit score in the credit report, together with an explanation of that score,
- Help Australians who are experiencing financial hardship to protect their credit rating when they enter into a financial hardship arrangement with their credit provider.
But first, let's go back to basics and look at what's in your credit report and what that means when you next apply for credit.
A credit report is a detailed record of your credit history, including the types of credit you've had and how you've repaid those debts.
Your credit report may include a 24-month history of whether you've made your loan repayments on time. This is known as repayment history information and a good history will help you to get approved when you apply for credit.
A financial hardship arrangement is an agreement between a borrower and a lender to adjust the borrower's loan repayment obligations because something unexpected has happened which has a big impact on the borrower's ability to repay.
Payment deferrals caused by natural disasters are good examples of when this might happen, but other circumstances such as illness or relationship breakdown might also lead to such an outcome.
Previously, if you asked for a financial hardship arrangement, your credit report might have shown you had missed repayments during the arrangement - without making it clear that this was due to financial hardship and done with the agreement of the lender.
What this means for you
The recent changes to the credit reporting law mean:
- The repayment history information on your credit report will reflect what was agreed under the financial hardship arrangement. For example, if the lender agrees for you to temporarily make half your normal repayments, your credit report will show that the payment has been made if you meet that agreement.
- The credit report will also put a flag alongside your repayment history information that indicates the repayment history is associated with a special arrangement - in the credit report this will be referred to as financial hardship information. Lenders will have access to this financial hardship information in situations where the consumer is seeking to access new credit.
The changes to credit reporting mean that if you need financial hardship assistance you can avoid having your repayment history impacted. At the same time, if you were to apply for a new loan with a different lender, they would understand you had received assistance and in order to be a responsible lender would likely want to discuss your current circumstances before agreeing to lend.
Other changes to the law include extra protections for you, such as:
- Limiting the circumstances in which other lenders can be told about your financial hardship arrangement - so other lenders can be told if you apply for another loan with them, but not if they are trying to collect overdue payments on existing loans
- Limiting what a lender can do with your financial hardship information when they do find out e.g. a lender can't use the information as the sole basis for closing down a credit card
- Deleting the financial hardship information from your credit report after 12 months (compared to 24 months for regular repayment history information) so that a temporary setback doesn't have a lasting impact on your credit report
- Prohibiting a credit reporting body (which holds credit reports) from including any financial hardship information when calculating your credit score
- Increasing how often you can get a copy of your credit report for free from a credit reporting body so that you have a better idea of what's on your credit report
- Requiring credit reporting bodies to include your credit score on the free credit report, with an explanation of what's gone into that score, so you have a clearer idea of how lenders might view you (which will help you shop around for a better deal)
These changes will not affect how existing hardship arrangements such as a COVID-19 payment pause will be reported. These changes will only apply to financial hardship arrangements that are agreed from July 1, 2022. COVID-19 payment pauses or other financial hardship arrangements agreed before then are not affected.
Your next step
It will be even more important to talk to your lender if you're struggling to meet your repayments. They may be able to help you get through the problem in a way that will help protect your credit report.