The implementation of Comprehensive Credit Reporting (CCR) last year gave Australians a new opportunity to significantly improve their credit score. Previously, credit scores in Australia were calculated based on negative activity only. So if you missed a bill payment or applied for multiple credit applications your score would be impacted and it would be difficult to reverse.
Now, that CCR has been implemented, your credit rating takes into account your entire credit history, positive and negative. This includes information concerning any credit accounts you have open, their credit limits and whether you regularly make bill payments on time.
Open banking is on the way
Just as CCR has helped customers by acknowledging their positive credit activity, Open Banking will make it easier for customers to access their financial data, and to switch lenders.
This access will make it easier for customers to switch banks based on low interest rates and deals, without the "hassle". Open banking will see banks communicating financial data to one another using API integrations.
Starting with the Big Four Banks, the government has given the deadline of February 2020 to provide access to consumer, account and transaction data for credit and debit cards, deposit accounts, and transaction accounts. Following on from this, other banks will need to follow suit.
How do improve my credit score before Open Banking arrives?
Before open banking comes into play, and your credit data is shared across Australian financial institutions, it's a good idea to improve your credit score. Here's how:
1. Check your credit score
Believe it or not, showing you are committed to your financial situation, and regularly checking your credit score can, in fact, improve it.
Rent, credit card bills, loans, utilities and phone bills are all lines of credit that you must show you are able to repay in full, every time.
2. Pay off your debts
If you have a credit card that you are only paying the minimum every month, you may want to think about boosting those repayments, or reducing your credit limit.
Making a significant repayment to an outstanding debt will do wonders for your credit score.
3. Pay your bills on time
If you regularly make bill payments on time, this can positively impact upon your credit score.
Showing that you are a regular depositor, who is conscientiously working toward repaying your debts, is a positive indicator that you are not a financial risk to potential lenders.
4. Don’t apply for multiple loans
Comparing multiple loans then deciding on just one to apply for may seem difficult, but applying for multiple loans at once can harm your credit rating.
Whilst applying for multiple loans can impact your score negatively, multiple comparisons will not make any difference. This is why, before deciding on the right loan for you, it’s important to compare rates, fees and features.
5. Determine eligibility before applying for a loan
Just like applying for multiple loans can hurt your credit rating, being rejected from a loan can also leave a mark. Before you apply for any type of loan, try to determine whether you will be approved, before you apply.
Calculate your repayments, figure out the fees and charges associated with the loan, and determine the total cost, then honestly ask yourself whether you can afford it.
6. Check your credit data is correct
Sometimes, credit providers can provide incorrect information, such as listing you in credit default, listing the same debt twice or sometimes you may have a fraudulent account created in your name.
That's why it’s crucial you check your credit report. If something seems inaccurate, contact your financial institution to see if there has been an error, then rectify it.
Is my data safe?
There is a concern amongst Australians that when open banking is introduced, our personal financial data is at threat.
This is not the case. The ACCC has collaborated with the banks and their fintech partners, as well as consulting CSIRO's Data61, an industry body specialising in data security.
Yes, your financial data will be more easily shared between financial institutions, but you will remain in control of your data, empowered to switch to a financial institution that better serves you, or can give you a better home loan deal.