The new credit reporting laws are set to take affect this month.
There are a number of changes taking place however none more controversial that the ability for a credit provider to record a late payment on a person’s credit file if an account is as little as five days overdue.
This could apply to any form of credit, from phone bills to utility accounts to mortgage payments, any credit provider that has an account to either Veda Advantage or Dun & Bradstreet will have this ability.
But what effect will this have on a credit file ?
Let’s first look at a credit score. A credit score is a number that is displayed on the first page of a credit file. It is this score that credit providers use to determine if an applicant is worthy of being approved for credit. A credit score is a moving target and is subject to change by things like a person changing employment, making credit applications and or course negative credit listings such as payment defaults and /or Court Judgments.
Other than a bankruptcy the lowest credit score is -200 with the highest being 1200. The lower the score the higher the risk a person is deemed to be. While there is no steadfast rule a credit score of 600 is seen to be average although this in itself is no guarantee a person will be approved for credit.
While a late payments will be recorded in the positive area of a credit file there is little doubt that it will have a negative effect on a credit score.
Up until now this was something people did not have to contend with and there is concern that this will lead to even more applicants for finance being declined.
While less damaging to a credit file that a payment default a late payment recording will almost certainly have a detrimental effect on a credit score.
I am sure you will agree that it is very easy to be five days late paying a bill, I am sure most people would have been guilty of this from one time or another so it is conceivable that many people could end up being affected by change to credit reporting.
While a single late payment listing may not have much effect on a credit score a number of them certainly could. In fact it may turn out that a number of late payments may carry the same impact on a credit score than a payment default.
The real concern is will this prove to be yet another reason for credit providers to decline applications?.
Although it would appear that the economy is improving, be it slowly, credit providers are still highly risk averse and late payments on an applicant’s credit file are sure to catch their attention. Only time will tell how credit providers will react to late payment recordings however given most Australians are late paying bills from time to time this problem could be a big one for a lot of people.
One thing is for sure though, with late payment records just around the corner consumers would be well advised to monitor their payments closely and have as many facilities on direct debit as possible.