This is an interesting question and there are a number of different views on this topic.
One of the key changes to credit reporting will be the provision for a lot more information to be contained in a credit file.
When a consumer applies for credit an entry of that application will be listed on their credit file for a five year term.
One of the issues with the current credit reporting platform is the lack of information recorded on a credit file. When a consumer applies for credit only the name of the credit provider, the date of the application and the amount applied for are recorded, key information such as if the loan was approved or declined or if approved was the loan actually extended are not recorded.
This lack of data can be a problem for credit providers as they have limited credit information to determine an applicant’s credit profile. To a credit provider the question to approve or decline an application is about risk and without the right information it can be very hard to apply the correct risk profile to the applicant.
One of the changes to credit reporting that takes effect in March this year is the provision for a lot more information to be contained in a credit file. This new information includes if an application for finance was approved or declined along with the repayment history on accounts.
From a credit providers perspective this information is invaluable and has the potential to change their view of an applicant’s risk profile.
The ability for a credit provider to view positive information such as a good repayment history as well as negative items such as payment defaults will provide far more objective overview of the applicant’s financial position. This has the potential to turn what may have been a decline into an approval which from a consumer’s point of view is a very positive thing.
Of course the provision for more information being held in a credit file does open the door for the potential for more errors. The information held in a credit file is only as accurate as the person entering it. Given this there will no doubt be information recorded that is not correct however this risk is small when compared to the positive aspect of a positive credit reporting platform.
Access to more credit information also has the potential to bring new credit providers into the market place. Since the global financial crisis a large number of credit providers stopped trading, many of which have never returned. Some of these companies are now considering returning to the market place as the introduction of more credit information will allow them to mitigate risk more effectively. More credit providers means more choice and more choice often means a better deal for the consumer which can only be a good thing.
Many are eager to criticise the new credit reporting changes that are coming into effect this year however in my opinion they have the potential to help both consumers and credit providers alike.