Positive Credit Reporting: Defaults Could Drop By Up To 40%

Government reforms to allow positive credit reporting could see credit defaults drop by 30% to 40% if overseas experience is taken as a guide, according to the 2012 IBISWorld Industry Report into Debt Collection in Australia.

Australia is one of only a few developed countries to still use negative credit reporting, and the long awaited government reforms are likely to be introduced in late 2013, says Nicholas Harrak, Head of Government and Commercial at recoveriescorp.

“Access to a greater set of data for credit providers will allow them to better assess high risk customers before granting credit, which would certainly lead to fewer defaults,” Nicholas says.

“Under the present negative credit reporting framework, you can fall behind on payments but no negative information will be recorded unless you fail to pay the account prior to a default being registered against your name. However the timeframe for a default varies between organisations and industries”.

“Positive credit reporting should show the last 24 months of payment history on an individual’s record, which might indicate they made six payments on time, fell behind, then finally made good. Under the current negative reporting regime, that information simply isn’t available,” he says.

The Australian industry is keenly awaiting the introduction of the new regime, which international experts say would provide more relevant and consistent data and result in improved customer value, reduced default rates, reduced decision times and less over-indebtedness.

Under the positive credit reporting framework, five data sets would be recorded: the date of an account being opened, the current limit of the account, the nature of the credit account, the date the account was closed and the account payment history.

*Information is taken from the IBISWorld Industry Report ‘Debt Collection in Australia’, by Nick Sallmann April 2012.*