Even though paying bills on time is now more important than ever, 7 out of 10 Australians aren’t aware of major changes to Australia’s credit reporting system that can affect their credit rating.

From 12 March 2014, the Privacy Amendment (Enhancing Privacy Protection) Act 2012 took effect incorporating changes to the Privacy Act 1988 to update Australia’s credit reporting system. Under comprehensive credit reporting (CCR), details of your personal credit accounts, and whether you’ve paid your credit card, mortgage or personal loan on time, may be captured by the consumer credit bureau.

The ReachTEL[1] poll for Veda found that while 77% of Aussies know their credit history is used by lenders when deciding whether to give a person a loan, most people don’t know about the new credit reporting system.

In 2008 Veda Advantage reported there were over 14 million credit files in Australia and of those more than 3 million contained negative listings!

Even one negative listing on a credit report has the potential to affect
your ability to secure credit for years.
The effects of this can be severe and widespread, from the collapse of a business to family breakdowns. Not being able to secure credit in today’s world can have disastrous consequences.

What is a credit score?

• Your Veda credit score summarises the information on your credit report into one number called a VedaScore.
• Your VedaScore is a ranking between 1 and 1,200 to help you understand your credit ranking against other Australians.
• Your VedaScore is what lenders can use when assessing your credit application.

Other agencies score you between -200 and 1,200.

How does a lender use a credit score to determine your risk profile?
According to Veda Advantage a credit score of +200 represents odds of 1:1 which means the applicant has a 50% chance of having an adverse event on their credit file in the next 12 months. For every additional 100 points the odds double, meaning the applicant has less chance of having an adverse event on their credit file.

So a credit score of +300 means the applicant has a 33% chance of having an adverse event on their credit file in the next 12 months. A score of +400 still shows a 20% chance. Whereas a score of +600 drops to a mere 6% chance.

With this understanding it is clear why a borrower may experience difficulty in obtaining finance with low scores.