PERC released a new study detailing the impacts of more comprehensive credit reporting in Australia and New Zealand. The report, Credit Impacts of More Comprehensive Credit Reporting in Australia and New Zealand, summarizes the results from a joint undertaking by PERC and Dun & Bradstreet Australasia using credit data from 1.8 million Australians.
“The results of the analysis provide strong empirical support for the proposed credit reporting reform in Australia and the reform that took effect in New Zealand as of April 2012,” said Dr. Michael Turner, PERC president and CEO.
The study’s key findings include:
- Credit reporting reform will make lending fairer. Groups that have traditionally had greater difficulty accessing affordable sources of mainstream credit will see a significant increase in credit access. For example, at a 4% default rate, borrowers between 18 and 25 witness a 46% increase in acceptances and those between 26 and 35 witness a 42% increase.
- Credit reporting reform will help lenders mitigate against risk. For example, the PERC study shows that if the same 60% population was accepted, default rates for the banks come down from 3.5% in a negative system to 1.9% in a fair file system. Thus, with inclusion of fair file data, the share of bad loans falls by 45%.
- A more comprehensive system is a more forgiving system. In Australia’s current primarily negative only credit reporting system, borrowers who have had serious credit mistakes in the past are virtually excluded from access to credit for five to seven years that the derogatoriness remain on their credit files. With fair file data, credit access for those with past credit mistakes improve. Among those with a previous bureau derogatory, acceptance rises from 0% to 6% at a 4% default rate and from .3% to 28% at a 6% target default rate.
For a complete list of the study’s key findings, download Credit Impacts of More Comprehensive Credit Reporting in Australia and New Zealand from PERC’s website.