On the 1st of July, Australia’s big four banks started implementing a system known as “comprehensive credit reporting”.
But what exactly does that mean?
Comprehensive credit reporting means that when credit providers supply credit bureaus with information about how their customers are managing loans, they supply both “positive” and “negative” information.
"Basically, the new reporting system takes all your behaviour into account, not just when you had a loan, what it was and when it was closed."
That's Graham Cooke, the insights manager of Finder.com, a website comparing financial services and products to help consumers make informed choices.
In the past, banks supplied each other with only "negative" information - such as when customers missed repayments.
Now, banks are also supplying "positive" ones - such as when loans are repaid on time.
Comprehensive credit reporting is thought to be more reflective of how individuals manage loans and gives people the chance to balance out a "negative" event with a "positive" one.
Julia Davis is the Policy and Communications Officer at the Financial Legal Rights Centre.
She's concerned more extensive credit reporting will target some borrowers unfairly.
"We just know hardship information is going to be included in people's credit scores and used by lenders to determine rates and whether they should lend to them at all."
Eighty per cent of mortgages - that's four million - are already being recorded in credit scores, along with 60 per cent of credit cards - that's 15 million.
If someone has six credit cards which each have a credit limit of six thousand dollars, lenders will see this on your credit report and calculate your risk or liability factor as 36 thousand dollars - even if only two thousand dollars of that money is still owed.
Finder.com did a study of 14, 000 people's credit history and found that the ideal number of personal loans and credit cards to have is one or two.
The credit rating of those who had never had a loan or credit card was 16 per cent lower than the other people studied, who had at least one credit card.
However, the same study also found that anyone who had three or more credit cards were much more likely to have a lower credit card rating - and would find borrowing money from the bank much more difficult.
Mr Cooke says many people fall into a credit trap, where they are convinced to purchase goods on credit cards for rewards.
"There is definitely a scene where people are trying to get rewards cards and build up as many points as possible and fly around the world. And that's all well and good as long as you can afford to pay back the high interest rates."
Experts advise anyone who is interested in checking their credit card history to go the government's Australian Securities and Investment Commission (ASIC) website.
Source: SBS News
