As the two-year anniversary of Comprehensive Credit Reporting (CCR) implementation approaches, participating lenders have provided CCR data on 24 per cent of retail Australian credit accounts according to Veda, the data analytics company and leading provider of credit information and analysis in Australia and New Zealand.
The two-year milestone, reached this month, comes as consumers and lenders alike are starting to experience the tangible benefits of a comprehensive credit reporting environment. CCR supports responsible lending by updating credit files with more insights about customers so that credit providers are able to make better-informed decisions on credit worthiness. CCR is now poised to help more Australians gain access to credit, who may otherwise have been excluded.
Due to CCR, more than 86,000 Australians who may have been financially excluded under traditional reporting are better able to access credit because potential lenders can now review their positive loan repayment behaviour. Previously lenders had limited insight into the prior credit performance of these customers. Currently, more than 3 million Australians are financially excluded, or denied access to appropriate and affordable financial services and products such as a transaction account, general insurance and a moderate amount of credit. Under CCR, the lending pool will continue to grow, as credit providers can make informed, responsible lending decisions and consumers become more aware of their credit rating. CCR will assist more people to build a credit history or recover from a bad financial situation by showing they are fiscally back on-track.
Veda welcomes global scoring expert
In recognition of the two-year anniversary, Veda, now an Equifax company, is welcoming global scoring expert Martin O’Connor from the United States to provide an insight into what is happening in credit risk globally, including the use of CCR data and alternative data sets in credit decisions. Mr O’Connor said in the relatively young CCR markets of Australia and New Zealand, the focus should be on building a strong CCR baseline.
“Our experience in mature CCR markets, such as the US and UK, is that lenders need to have a CCR foundation in place before adding alternative data sets to ensure they are making lending decisions that benefit and protect both their business and their customers,” Mr O’Connor said. “Lenders benefit from CCR through improved risk assessments, more scoreable individuals and more competitive pricing while consumers benefit from more access to credit, better pricing and lower deposit requirements,” he added.
For lenders, CCR reduces reliance on the limited insights offered by traditional, negative reporting that can expose them to a number of potential risks, including applicants who may disguise their financial circumstances or full financial history to increase their chances of being approved for credit.
Such insights are invaluable to lenders striving to make informed, responsible lending decisions, and can offer individuals with poor or non-existent credit histories a chance to build or rehabilitate their credit reputation without forcing lenders to take on the burden of increased risk.
Mike Cutter, Veda’s Executive General Manager, Credit Risk and Advisory Services, said the quality and breadth of data available to lenders was constantly improving under CCR. “Credit providers participating in CCR enhance the identity details for each account every time they submit monthly repayment behaviour. “The use of CCR data is having a measureable impact on the market. Analysis of the 8 million account holders on Veda’s bureau shows that the average VedaScore is between 7 and 19 per cent higher for credit active individuals with CCR data in their file than for those without,” Mr Cutter said. Increases in VedaScores generally translate to an increase in loan approval rates subject to a lender’s serviceability requirements.
As CCR continues to gain momentum, a number of major players have signalled their intent to load data and implement CCR consumption plans. “CCR progression is going well, when compared to other markets that have gone through this transition and in light of the scale of change lenders need to undertake,” Mr Cutter said. “This is just the beginning for local CCR and alternative data use. We’re looking forward to watching the market mature and experience some of the measurable value evident in global markets,” Mr Cutter added.