Comprehensive credit reporting was introduced in Australia more than 12 months ago. With it came the opportunity for credit providers to see a more complete picture of borrowers than ever before and make a more precise assessment of a customer's potential risk.
Experian is encouraged by an increased commitment on the part of credit providers to take advantage of the benefits of comprehensive credit reporting.
Experian operates 19 consumer credit bureaus around the world and has helped transition other countries to comprehensive credit reporting. We have seen first-hand the economic benefits that come with the associated uplift in consumer confidence and increase in lending in these markets. The benefit to both consumers and providers is clear.
The US and UK have been operating in a positive data environment for years, and in these markets consumers have responded by proactively managing their credit reputation and profile and using it to facilitate a better relationship with their provider.
Australian credit providers have been slower than expected to take advantage of the opportunities the legislative change offered, and as a result, the Australian credit industry is still in a state of transition. Most credit providers are in the process of updating their systems and credit policies to use repayment history information when considering a loan application – some have already done so and others are dragging their feet.
Comparatively to other markets such as the US or UK, Australian consumers are uninformed about credit reporting. Research conducted by Experian last year found 40 per cent of Australians didn’t know what a credit score is, while a further 38 per cent didn’t know how it is used to grant credit. However, as consumers become more knowledgeable, we’ll see a fundamental shift in the way they approach credit. Consumers will be more informed about their credit profile and will increasingly expect their repayment history information to be considered in the application process by their provider.
The conversation will change from ‘What is a credit report?’ to ‘How can I improve my credit score?’ and ‘How can I make my credit history work for me and improve my overall credit behaviour?’ A consumer’s credit profile will become an important reputational asset, as it is already in the US and UK.
Experian is encouraged by the building momentum on the part of consumers and providers in Australia to embrace comprehensive credit reporting. We expect the numbers of financial institutions who will have completed their transition by the end of 2016 to be significant. How we as an industry navigate the changes this brings will determine the extent to which the opportunities of comprehensive credit reporting are broadly and truly realised.