Why New Credit Reporting Rules Mean Bill Payments Matter More

As of 12 March this year (that's tomorrow), the Australian laws for credit reporting is changing. Most people (60 per cent according to the Australian Retail Credit Association) don't know about this change, and it is perhaps the most significant legislation change to your personal finances in your lifetime. So it's worth sitting up and taking notice.

Credit card picture from Shutterstock

What is a "credit report"?

A credit report is a file which scores your personal finance history. The report is what a bank or any service provider uses to assess whether you're a "good citizen". It allows them to understand whether or not you have the capacity to pay for their services and what fees they should be charging to cover their risk. So it is the basis for how a bank picks and chooses its customers — whether they approve or deny your loan or credit card application.

Despite its importance, credit reporting is poorly understood by Australians. In fact, Veda the dominant credit report provider in Australia, found that up to 80 per cent of consumers aren't even aware such a report existed of them.

What are the changes?

Australian credit reporting practices is changing to be in line with the rest of the OECD. Traditionally, we have used "negative" reporting — meaning the primary focus has been on whether or not you have been denied credit enquires in your history. Every time you've been requested and denied for credit products like a home loan or a credit card, that's recorded. While this is simple, the downside has been that particularly given rising house prices, multiple loan enquires and for increasingly larger amounts has been more common. So it's been easier to rack up more bad marks against your name than ever before.

From 12 March, this will change to "positive reporting" — meaning the assessment will be made with the focus on whether or not you've serviced your credit on time. Or in other words, whether you've paid your bills on time. In its totality, this is a fairer system because more data is considered so it will be a truer representation of how "good" you are.

However, there is a downside. The implication of the new laws is that every time you're late paying a bill, a black mark will essentially be registered against your name. While this sounds fair, the consumer behaviour truths make this worrying.

Starting off, only a small proportion of consumers are aware of credit ratings and the changes March 2014 entails — so no one actually knows that paying bills on time is going to be more important. Secondly, looking at January 2014 data in Pocketbook, 12 per cent of all bills were paid late — so a significant proportion of people currently pay bills late by habit already. And finally, Veda last month reported that loan applications are at the highest level it has been in four years — so more people are relying on their credit reports to get the finance they want.

These trends in combination means you should care. It also doesn't help when the banks seem to be charging you illegal late fees on top of all of this.

What can you do?

To minimise the risk of being straddled with bad credit, the best course of action is to make sure you pay your bills on time from March. A few novel ways you can make this easier for yourself:

  • Ask your provider to send all your bills via email and set up special tagging or folders in your email client.
  • Use the calendar function on your phone to set up reminders for due dates.
  • Download your bank's mobile app, so you can pay bills whenever you're out and about.

Finally, at Pocketbook, we've built the app with bill support from day one. We detect your bills automatically, forecast it and alert you when we don't see it paid. Over the next few weeks, in response to the legislation change, we'll provide a feature for you to alter the due date we've forecasted, to make sure this is even more accurate in the fight to maintain your good credit.

Why You Shouldn’t Pay Bills Late From March 2014 [Pocketbook]

Bosco Tan is a technology entrepreneur and the co-founder of Pocketbook. Follow him on Twitter.


Comments

    I was getting stung $20.00 everytime I was a day late in paying for stuff online, so Instead of using a debit card, I started using a credit card. It is really easy to think you have enough for that small purchase and forget to check later, I never let it get out of control, but those late payments are too bloody high and too easy to incur. however if you are a serial late payer, and you are using a credit card, this is obviously going to be an issue too...!

      My understanding is that with the new court finding that ANZ's late fees were illegal that we're all set to get a rebate at some point for any late fees incurred.

      http://www.smh.com.au/business/banking-and-finance/anz-late-payment-credit-card-fees-illegal-court-20140205-3205g.html

        There could be also other banks impacted. If you want to take a look at how the banks compare. See here: http://www.businessinsider.com.au/analysis-this-is-what-youre-really-paying-in-fees-to-the-big-four-banks-2014-2

    The article seems to paint a very negative light on what should be a positive improvement to the system..
    Serial late payers might not see the positives, but for everyone else it will show a much truer record of your reliability to pay even if you do slip up on the odd occasion.
    In a screen of "On Time" payments, noone is going to be too concerned by the odd "Late Payment".

      Thanks Stevo - my intention was to point out the changes are better - but a certain segment - serial late payers - need to know about the changes. There's a general lack of discussion and education on credit reporting for the public, let alone the specific major change.

      You can see my comment - "In its totality, this is a fairer system". I'm "positive" about the change - no pun intended, but I'm down on the amount of education that's out their for the consuming public.

    Sigh.

    http://www.oaic.gov.au/privacy/privacy-resources/privacy-fact-sheets/credit-and-finance/privacy-fact-sheet-16-credit-reporting-repayment-history-information

    "Information about any particular payment cannot be held for more than two years from the date it was due."

    Yeah, ruin your life.

      And from the same sheet, "This means that if you fail to make the full amount of a payment on time from December 2012 it may affect your ability to obtain credit in the future." so the article's given advice of "make sure you pay your bills on time from March" is wrong too.

        Thanks for this. I do understand that the past history matters, however it'll be difficult to control the past. The importance is for those persistent late payers to focus on the issue from now on and start to earn a history of good track record to offset.

    "the assessment will be made with the focus on whether or not you’ve serviced your credit on time. Or in other words, whether you’ve paid your bills on time."

    Waitwaitwaitwaitwait. These are two very different things. One relates to _credit_ payments, which I understood the law change to apply to, and the other applies to bills, such as utility bills, which I understood that it didn't.

    This piece also appears to be an advertisement for an app, which isn't made clear anywhere. If this is, in fact, an ad or if this change doesn't apply to what the piece actually said, this is very ethically dubious.

    Could Lifehacker please confirm that neither of these are the case?

      Yep -- not an ad, just a guest post. Paid advertorial is always clearly marked as such.

        Really... sure sounds like an ad to me...

        From body text of the story...

        "Finally, at Pocketbook, we’ve built the app with bill support from day one. We detect your bills automatically, forecast it and alert you when we don’t see it paid. Over the next few weeks, in response to the legislation change, we’ll provide a feature for you to alter the due date we’ve forecasted, to make sure this is even more accurate in the fight to maintain your good credit."

        Paid or not... this is an ad. For an app proclaiming to address the specific issues of the story subject. Presumably written BY the app developers. Wait.... there's no presumably here folks. The whole piece was written top-to-bottom by one BOSCO TAN.... who is Bosco Tan I hear you ask... lets click the link to reveal the answers... https://getpocketbook.com/blog/author/bosco/ "Bosco is the Co-Founder of Pocketbook. Bosco has years of experience working with big corporates to achieve their strategic and budgeting goals. Bosco is now hoping to use these same principles to help individuals. Bosco is also a keen property and angel investor.

        Now I'm not against the concept of (clearly denoted) paid advertorials... and let's assume that this one made it slipped though the editorial process at LH without being picked up, or correctly marked for what it clearly is... an advertisement.

        I really enjoy LH and the entertainment and learning that I get... for free... everyday. And I understand that to pay for the hard work that goes into bringing that content to my browser every morning, the group needs to sell advertising.

        Where things start to go off the rails very quickly is when content and advertising become the same thing. A brand will lose it's credibility overnight. Please LH don't go down that slipperly slope.

          Appreciate the feedback, but no need to get worked up. Advertisements are marked as such. This here is a guest post that provides some useful tips, on an important subject, written by someone who has valid insight to share on the matter. @anguskidman runs interesting posts by guest authors (often originating from Lifehacker comments posted by our fantastic community) who boast all sorts of backgrounds and useful industry experience.

          One of my favourite guest posts of all time on Lifehacker was tips on living in a car while holding down an IT career -- by Dylan O'Donnell. And of course we let him include a brief plug (ie link back) to where he was working at the time. Seems fair and sheds further light on the experience behind the story you're reading. Meanwhile, if you have any great tips to share @timdotnet -- feel free to send us some words. If they're insightful, we'll be happy to link off to your blog or workplace to underscore your expertise on the given subject. No ads involved.

      Hi, the Pocketbook reference is simply to highlight a unique feature we offer for managing bills. As you can see the primary recommendation is to stay on top of your online banking transactions and put bills in your calendar. Which are very general good practice tips.

      On the credit vs utilities comment - Right now, the impact is with credit related bills. But as utility companies (some already do) start to use credit reporting as a basis of approving or denying you for service, that track record will foreseeably be included in the score as well. With this change backlogging to Dec 2012, it makes all the sense in the world to future-proof.

        What utilities "deny" you service if you don't have an outstanding debt with them?

        I would find it very unlikely and possibly unlawful to be denied an electricity, gas, internet or otherwise connection due to unrelated debts...

    So does that mean that if the payment is late, there is a double whammy

    1. The provider charges a late fee and some even charge interest
    2. The credit rating goes down

    a $10 late fee on a $90 bill is more than 10%, should there not be a limit to what some can charge as late fees or fines?

      Yes potentially that is the case. So good to find a management system that works for you.

    The article doesn't really explain what is meant by "Bill"?

    Will a late payment on an Internet, phone or electricity bill show up on your credit report or does bill only refer to loan repayments?

    I don't think I have ever made a late payment before, but I'd still like to know what is actually included, just in case.

      See my above comment on the potential inclusion of utilities bills in such a score.

    While I use and love Pocketbook, there are times when it reports a bill not having been paid and I know for a fact that it has. Auto debited from my credit card. I wonder how accurate the 12% figure quoted is?

      Hi Steve, we're refining the date shift / auto-detection on these. So if we're still not getting it right for you, drop me a line and we'll take a closer look.

    eh gay, this won't work for me lol.

    There are periods where my spending habits are pretty bad and I may be late on a bill here and there.

    But on the other end of the spectrum I have a period where 80% of my pay cheque goes to paying off/or making extra payments to bills and debts.

    so mad lol

      I think the whole point is to give someone who have periods where the "spending habits are pretty bad" a lower score than someone who consistently pay on time. Someone not paying (on time) is exactly what credit risk means.

    Hope this doesn't end up like America where real estate agents and employers check the score of potential renters/employees.

    If you lose your job and are late paying bills/rent/mortgage then your credit score goes down, sometimes to the point where you can become unemployable and homeless.

      Yep, that could potentially be a real worry. Fingers crossed!

      That certainly is a concern. But having been in a similar position I found being proactive contacting creditors to notify them of the situation, most were more than generous by organising payment plans/arrangements to work with my needs rather than filing the debt with a credit agency. Also provided a chance to have a hard look at finances and what I could/couldn't afford. Has opened my eyes to necessities vs luxuries. Certainly don't need that $100 a month Foxtel or the $100 a month phone plan. I've learnt to live within my means now.

        Good note. One the article neglects (amongst others, its kind of a trainwreck). This is less about payments and more about organization.

    Have you checked with your bank to see if it is OK to just give your internet banking password to Pocketbook?

    I just checked with both my banks and it is definitely NOT OK!

    If you give out your password YOU are liable. There banks terms and conditions clearly state you must not give out your password to anyone.

      I see "pocketbook" didn't respond to this, even though he has to almost all the other comments.

        I completely agree. I had a similar issue recently with another company - a microloan company, Nimble.

        They now require you to either submit a transaction statement, or to grant access. I was hesitant to use this at first, but was in urgent need of a small amount of money for an unexpected expense..

        Bam. Was instantly locked out of my account for fraud protection reasons.

        Contacting Nimble, they knew nothing of any laws or regulations.. Only that "it was a trusted company so it should be fine". This company did not even have any legal prescence in Australia.

        Reaching out to my bank, The Commonwealth bank - they informed me that this went directly against the terms of my account, and could lead to account cancellation. Not only this, but it could undermine any and ALL fraud protection on my account as I was essentially willingly giving these details to someone.

        0/10. Stay out of my bank.

        @pocketbook

      While this is true it is just another indication of how outdated banking technology has become that you can't provide a third-party with READ-ONLY access, for instance using an OAuth-like authentication system. More and more useful third-party websites and application are adding value to the banking experience, yet the old guard are still reluctant to facilitate easier access.

        I don't think that's outdated at all. It seems like decent security. Any access to such data has the potential for abuse, and my exact transaction details being potentially open to the internet is a pretty major concern..

          I still stand by my statement that banking technology is outdated. Just like Facebook, Twitter and a multitude of other service can provide a detailed or restrictive API to use, so should he banks be able to provide read-only access to LIMIT details on my accounts. Most of these financial website only need to know the date and amount of the transaction. Why can they not query an API that will only expose those limit details? I agree that giving access to your financials should not be done, but if the banks create these limited interfaces isn't it better as THEY then have control over what information leaves their systems?

            So you don't think that a tool that lets someone publically see you were at say, Clarkson Service Station 4 minutes ago is a problem? I mean, not for the ones you authorized.. But as I say, I doubt a small pocketbook companies security is that good at all.. I mean when huge sites are getting hacked and leaking customer details.. What chance do these guys have? Probably not much. I'll keep my financial history hidden, thanks.

            [Cue response from them about how its incredible with no real meaningful insight]

    Yeah, include me in those not quite sure what this means.

    I'm currently applying for a home load. Will I be declined because I always forget to pay my electricity bill on time, or will they only look at my record of always paying my car loans and credit card off on time? I direct debit everything except power (because it always varies so much) so that's really my only concern, a utility bill.

      Just pay a fixed amount to your electricity retailer every fortnight/month/whatever, and at the end of the billing cycle you'll either be short by a small amount, or ahead by a small amount. It is then much easier to budget for making a one-off $40 or whatever payment if you're a little short.

      It works well even if your bills are not particularly consistent.

        I direct debit a set amount each quarter, but I always end up a little short. Which is fine. It's not a budgeting issue, it's a forgetfulness issue.

      Correct me if I'm wrong, but I think the bill has to be 60 days overdue for it to be recorded. I don't think you will have any problems with a late electricity bill amongst all your on time payments.

    Bad timing, I'm currently avoiding a bullshit fine in NSW until I get my motorbike P2's in the ACT, otherwise I might (probably not, they're pretty crap at transferring points, but still a risk) lose enough points to lose my motorbike P1's. Hopefully doesn't mess up my credit rating by being a month late.

    (by bullshit, I contested it, and they mailed me back basically saying my explanation was acceptable, but as I hadn't had no fines in 10 years they couldn't rescind it without me going to court, and NSW judges are quite skewed toward the cops).

    Look this is a terrible farce. Aus pollies are just being paid off to fall in line with the UK and US financial con artists to slug consumers with extra charges and Aus lenders are more than willing to fall in line.

    Having lived in both the US and UK it is a pretty sad state of affairs. Whether you are buying a house or renting a DVD, absolutely everything revolves around your credit rating; and that is no way to live. It is soul crushing. It is the Dickensianism nouvelle.

    So at this point you are probably thinking,’ well just pay your bills on time and it will all be fine.’ No, that’s false as well. Example: I have a mate in the US that did pay his bills on time, he also made the egregious mistake of paying any loans he had off early. One day he wanted to buy a house. It was a small house in a rural area. His bank said “no, your credit is too good, buy it on your credit card. That is to say we as a lender will not make enough money giving you a mortgage at 4%, buy it on your credit card for 15% or, phrasing it nicely, ‘go away’”. He was left with no option but to use his credit card and get fleeced an extra 11% . I have the exact same story with several American friends and their car loans.

    The news, financial advisers and governments are fond of quoting protections for the consumer, “if you have a bad mark on your credit report appeal it and it will be resolved”; but that is falsehood also. Even if there is a genuine reporting error on you record, the credit bureaus share information with each other instantaneously. If you were to contact an agency to get a genuine false bad mark on your credit history removed, and if miraculously the agreed to remove it, it is all a moot point because the other agencies have a copy of the bad report and it just gets shared back. It’s the credit reporting equivalent to ‘whack a mole’, hit one another pops up again. The black mark never goes away. I work in IT and I can tell you in exquisite detail how that works and how the general lack of security and encouragement thereof produces a negative credit score. 1 in 10 Americans are victims of identity theft every year. Through no fault of their own it makes an absolute mess of their lives and it never ever goes away. And may I point out that us Aussies don’t have the protection the US consumers have when it comes to interest rates. In the US the maximum per annum rate is 30% in Aus it is 48%. Who is on your side?

    With regards to the above there is a trend in the US (possibly the UK too, I have not lived there in while) to make ‘clerical errors’ in your billing/payment structure so that you get printed statements saying your car loan for example is to be paid on the 15th of the month, but the data centre computer has it listed as the 10th so you get a credit black mark plus a late fee. And no doubt several because it take months to ‘correct’ that. I have several friends who have had that happen to them (auto, cable and electric bills) plus myself as well, with an auto repayment.

    With regards to my personal experience, my auto loan lender (Toyota) ‘magically’ decided that I was some guy, in another US state , divorced with two kids and couldn’t accept my car payments. Yet, as I have only lived in one US city and never been married, they were strangely able to send nasty bill notices to my proper home address in the correct city and call me at my proper number, nastily and repeatedly I might add, about ‘late payments’ and be abusive about the divorce settlements to the wife I never had. Again being in IT I can tell you with exquisite technical detail how this happened and from a marketing and financial perspective how it was allowed to happen and how the recoveries people who are paid to be crappy were just allowed to be crappy. They can, so they did. It took four months to resolve that and yes I had an interest increase in my auto payments (being a magical credit risk) and a big black eye on my US credit report which over 10 years later has never gone away (and never will, see above).

    I also have to point out that working in IT and one of our fine state governments, that whilst the feds may be really interested as to who you are calling and what your emails say; ASIO can’t compete with the international credit bureaus. We buy services and information from domestic and foreign credit bureaus because they have a better profile of you than we or any other national agency ever could and what these private agencies know about you and me and the level of detail and ridiculous level of expediency is simply frightening. Bluntly a privately held credit bureau in the UK knows when your mom died before the department of Births, Deaths and Marriages does in your/my home state. Yes, really. Now imagine all the other information our government pays your tax dollars to foreign credit agencies to find out about you. It is a lot and what they gather is remarkable. And again, from an IT perspective, it is remarkably and technically so simple. So there is a very good reason why these new credit laws went though.

    This is the part where you should be upset because, you gentle consumer taxpayer are paying for it.

    I’m sure there is an Orwell comment I could make but that would be annoying. The point is the whole thing is a sham from top to bottom.
    Aus, short of lighting things on fire (which I can’t endorse) you/we just have to vote better. Aren’t you tired of this crap?

      I rented a car for a short period while my car was being serviced in the US. The agency (Avis or Hertz or whatever) did a credit-check at the counter and they got a minutely detailed printout of my entire US credit history printed out, with amazing details on income, house purchase etc.

      All available for any random counter jockey to peruse, copy or use at will.

    How many struggling to pay bills on time because they were put on the lower paying newstart payment. I unfortunatly pay some of my bills late. but I always pay and have no negative rating. Now I could be blacklisted, 860.000 single parents were put onto newstart last year and many struggle just to pay rent.

      I did a breakdown of the payments for single parents in another thread just the other week, and it is indeed pretty grim, and getting a job isn't much of a better option - you might end up with a few grand extra a year for endless hassle and stress.

      Good luck is all I can say.

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