New Zealand has beaten Australia in the race to introduce new credit reporting requirements that protagonists argue will make it easier for young people and small businesses with little credit history to get loans.
Draft amendments to the Privacy Act which are being considered by the Government would provide lenders and suppliers with a more comprehensive profile of the borrower.
Currently a credit report is only allowed to contain identity details, past credit applications and information on bankruptcies and defaults.
But the new credit reports would give lenders access to both positive and negative credit information. These reports will contain additional information such as credit card accounts, personal loans, or mobile phone bills.
Supporters of the new reporting system, who include the banks, finance companies and credit agencies, says they will have the potential to show creditors how committed consumers are to making smaller scale repayments.
The draft amendments have already passed through a Senate inquiry by the finance and public affairs committee, but a firm date for the start of any new system has not been set.
But New Zealand will introduce legislation supporting the credit reporting system on April 1, beating Australian to the punch.
The risk management arm of Dun and Bradstreet have been at the centre of the push for reform in Australia, arguing current laws are providing an incomplete picture of a borrower’s true risk profile.
“At the moment we essentially have an honour system. People can be well in arrears, yet unless they default they can still get more credit,” Steve Brown, D&B’s Australia’s consumer credit bureau director told SmartCompany.
“[The proposed system] makes it easier to provide a better measure of risk,” Brown says.
“We have watched globally, and comprehensive credit reporting has developed as best practice methodology.”
Young people and small businesses with little credit history will be the main benefactors of the changes.
Small businesses will be able to demonstrate credit scoring through positive data such as paying off accounts to suppliers or utilities.
By providing lenders with access to these types of positive information, credit providers will be more inclined to deal with small businesses with little or no credit history under the current model.
“These businesses after often not very visible in their credit history. If they already make their commitments on other accounts, this builds a credit history we can refer to. The additional information that becomes available about business owners tends to turn small business owners from ‘credit invisible’ to ‘credit worthy,’ Brown says.