shutterstock_510195559In March 2014, Australia introduced comprehensive credit reporting.

The change had good and bad points. The good is – tighter protections for consumers facing hardship, and more notifications required prior to default listing a client on a credit file. The bad is – there is likely to be more black marks on credit files because of the introduction of late payment markers. Only a handful of Australian companies are now sharing late payment data but this will likely change soon.

In the UK, where they have been listing late payment markers for 15 years, this has led to an overall increase in credit impaired people.

Prior to comprehensive credit reporting in Australia, there were 16.38 million credit files in existence in Australia, according to Veda Advantage. These credit files listed 3.8 million consumer defaults and 477,324 court actions. On commercial (that is, company) credit files there were 158,025 defaults and 105,000 judgments. Based on these figures it was estimated that 10-20 per cent of the credit-active Australian population was effected by a poor credit rating.

In the UK, after 15-plus years of comprehensive credit reporting, the situation is much direr. Research conducted in 2012 revealed 57 per cent of the UK adult population were at risk of being declined credit by mainstream lenders. This research highlighted the enormous difficulty that credit-impaired consumers and companies experience when trying to gain low-interest finance. https://www.aquacard.co.uk/pdf/mind-the-credit-gap.pdf

Having now introduced comprehensive credit reporting into Australia, the numbers of credit-impaired consumers and companies is likely to soar from 10-20 per cent to over 50 per cent. 

The effect of this will be a much more fragmented financial market. There are numerous less-regulated finance options that have emerged to deal with all the people with poor credit in the UK and the same is likely to happen here as well.

In 2014, a research report by Dr John Glen found that UK families with a poor credit score were paying £3.5 billion ($6.4 billion) more than people with good credit for identical products and services. The average family with a low credit rating therefore spent an extra £1,170 ($2,130) each year on mobile phone contracts, utility bills, broadband, credit cards, white goods and cars purchased on finance. https://www.aquacard.co.uk/pdf/the-cost-of-poor-credit-rating.pdf. This report did not include mortgages, which must be taken into account to get a complete picture of what credit impaired consumers face.

Similar research to this is needed to highlight the cost of a poor credit score in Australia. We know that on an average home loan of $400,000 credit impaired consumers will pay up to $27,000 more per year in mortgage payments. For other goods and services they will also pay more. More than ever it is important to make sure your credit file is kept squeaky clean.