What does it mean for you/your business?
Mandatory Comprehensive Credit Reporting (“CCR”) came into effect on 1 July 2018, which required the big four banks to fully participate in the credit reporting systems.
The information provided to Credit Reporting Bodies (“CRBs”) allow them to calculate a credit score, which provides an indication of the likelihood of an individual/business to pay back money owed to lenders.
In essence, the information held by CRBs allow licensed credit providers to access and use the information in order to make more informed lending decisions.
Having a higher credit score plays an integral role in allowing consumers greater access to credit, and at potentially better rates.
It is therefore important that individuals and businesses gain an understanding of credit reporting to be able to identify circumstances in which they need to communicate with their creditors, and strictly abide by borrowing obligations.
There are 3 key items that may appear on a credit report:
- Default judgments
Default judgments can be reported on credit files by judgment creditors, and arise when a Court has made a judgment against a defendant without having a hearing in Court because the defendant failed to respond to the originating summons within the required timeframe.
2. Repayment history information
Late repayment history occurs when the minimum repayment on a credit account has not been made in accordance with a credit contract payment schedule, or within a 14-day grace period, which is the time period following the due date of an account, where a lender is not allowed to report the late payment.
Repayment history is indicated through the use of symbols on a credit file during the duration of a credit account.
The symbols used, and their meanings, are as follows:
- “0”: The consumer credit is not overdue (and the Grace Period has not been activated)
- “1”: Up to 29 days overdue (after the Grace Period has been applied)
- “2”: 30-59 days overdue
- “3”: 60-89 days overdue
- “4”: 90-119 days overdue
- “5”: 120-149 days overdue
- “6”: 150-179 days overdue
- “X”: More than 180 days overdue
- “C”: The account was closed, or was not yet opened during the reporting period
- “R”: The payment was not reported during the reporting period
- “P”: The repayment data is pending for the reporting period
As these symbols are automatically generated through the collation of data by CRBs, it is important to ensure that the symbols have been reported correctly. For example, repayment history information is required to be sequential, so if a “0” is followed by a “2”, this clearly indicates incorrect reporting, which may adversely affect a credit score.
3. Payment defaults
A payment default is typically reported when an overdue debt has not been addressed in accordance with the terms of the credit contract.
However, should a payment default be reported on a credit file, there a 2 arguments that may be applicable to request that the default be removed.
a. No notice received (only applicable for consumer defaults, not commercial)
In accordance with ss 6Q and 21D of the Privacy Act 1988, a credit provider must give an individual 2 separate notices to advise of an impending default listing. Furthermore, the credit account must have been over 60 days in arrears, and the credit provider is required to have taken steps to recover the outstanding account before issuing the notices.
Accordingly, it is always a good idea to notify creditors of any changes in address to ensure that all correspondence is received to avoid default listings, as creditors will typically issue the notices to the consumer’s last known address, which is supported by credit codes and legislation.
In addition to the statutory notice requirement, as a general principle of contract law, the regular mode in which correspondence is received from a creditor should be the same mode in which the notices are delivered.
As such, if correspondence has typically been sent by a creditor via email, and the notices are posted, a reasonable defence exists that the creditor behaved outside of their typical mode of contact and therefore, an excuse exists for having not received the notices.
b. Hardship (available for both consumer and commercial defaults)
As directed by s. 9.1 of the Credit Reporting Code (“Code”), a credit provider must not disclose a payment default if a consumer has made a request for hardship assistance.
Furthermore, under s. 72 of the Code, once a hardship request has been made, the credit provider must properly assess the borrower’s financial situation and provide assistance.
Accordingly, borrowers should inform their creditors when experiencing financial hardship.
If a payment default is reported by a creditor after being informed of a borrower’s financial hardship, an argument exists for the removal of the default in accordance with the Code.
Due to the financial implications of COVID-19, it is prime time for consumers and businesses to negotiate with creditors regarding negative repayment history or payments defaults if they have been negatively impacted by COVID-19, as creditors are more likely to take financial hardship into consideration during the present circumstances.
Furthermore, with consumers and businesses becoming more reliant on lending to stay afloat, it is important to be proactive and keep track of credit scores.