The change to your credit score that's coming this year

Credit agencies have been collecting more information since the new credit reporting regime started in March 2014.

Before the change, credit reports, which credit agencies provide to lenders when they check on applicants, only held negative information such as missed payments of more than 60 days, and bankruptcies.

Under the comprehensive reporting regime, there will be much more data, including monthly payment histories on loans and credit cards, where there will be red flags on any missed payments of more than 14 days.

Jason Yetton, chief executive and managing director of peer-to-peer lender (P2P) SocietyOne, says with the comprehensive credit reporting regime, it is more important than ever to find out exactly where you are sitting financially.

"This means you should find out your credit score, ensure your payments are up-to-date, don't miss a bill and don't over-extend yourself on credit," he says.

Big banks

While the new reporting regime started in 2014, financial institutions have only been feeding a trickle of data to the agencies, with the big four banks yet to provide any comprehensive data.

That prompted the Turnbull government late last year to announce that it will force the big banks to have their credit data ready for reporting by July 1, 2018.

By the middle of 2019, the big banks are required to hand over all of their credit data.

However, consumer groups are worried that comprehensive reporting will have negative consequences for consumers unless changes are made.

Gerard Brody, the chief executive of Consumer Action Law Centre, is worried that negative information will be used by some lenders to charge some customers more for credit.

"We may see an influx of expensive priced-for-risk products, like credit cards charging up to 50 per cent per annum, for those deemed not to be good payers," Brody says.

Toxic products

He says these "toxic products" exist in the United States and Britain.

Karen Cox, the co-ordinator of Financial Rights Legal Centre, says more information on credit reports also means more mistakes, where people will be denied credit and that will be a boon to businesses that promise to "fix" people's credit reports.

"There has been a huge growth in unregulated debt management businesses in Australia in recent years," she says.

"Credit repair businesses are a type of debt vulture, promising to clean or fix people's credit reports," Cox says. "The problem is that they tend to mislead people and charge thousands of dollars for bad-quality services.

"Putting more information on credit reports will just turbo-charge these unregulated businesses."

The big four banks also have concerns about being compelled to join the comprehensive reporting regime.

Anna Bligh, the chief executive of the Australian Banker's Association, says the banks' credit data will be shared and made available to all financial institutions.

"It is imperative that the safety and privacy of consumer data is paramount in the new scheme and that people are not unreasonably or unfairly denied credit," Bligh says.

Privacy concerns

Chief among the association's concerns is whether consumers have a right to request that their credit history is protected or not passed on and if customer data is provided to non-bank financial services, what privacy protections will be put in place.

Another concern, among others, is whether a period of temporary financial hardship caused by sudden unemployment or natural disaster will impact a person's long-term credit rating.

Treasurer Scott Morrison said late last year when announcing the big banks will have to provide comprehensive data that it would allow new entrants and small lenders to better able serve customers and assess borrowing capacity.

Morrison said the move is a "game changer" for both consumers and lenders, resulting not only in greater lending competition but also better access to finance for Australian households and small businesses.

The credit agencies lobbied for comprehensive reporting in Australia, arguing the inclusion of repayment histories on loans would help those with poor credit histories to show lenders they had changed their ways.

There are several ratings agencies, but Equifax (the former Veda) holds the largest number of credit records on individuals. Others include Dun & Bradstreet and Experian.

Poli Konstantinidis, the managing director of credit services and decision analytics at Experian, says comprehensive data will increase competition among credit providers and potentially drive down many costs for all credit customers.

"Although as many as 80 per cent of borrowers across Australia are likely to have been making their repayments on time ... borrowers need to remain vigilant over their repayments, so they can continue to positively impact their credit scores in the future," he says.

Fairer system

"From our experience in the 18 other countries where we operate a credit bureau, positive data sharing is a much fairer system.

"For example, positive data may help potential first home buyers who don't have a long credit history, to be approved for finance, where previously they may have been declined."

Positive data sharing may also enable Australians with a stronger credit history to access more competitive deals and interest rates, Konstantinidis says.

The new reporting regime will be a boon to the P2P lenders, which are like auction sites where borrowers make an offer on what interest rate they will pay and lenders bid to supply the money.

No two P2P lenders work exactly the same way, but they mostly offer only personal loans and business loans at this stage.???

The appeal for borrowers seeking unsecured personal loans is that they pay lower rates of interest than they would on bank loans, while lenders stand to earn higher interest than they could get with a bank term deposit.

All use "risk-based" pricing so borrowers with the best credit scores are offered the lowest interest rates while those with poor credit scores are denied credit or pay higher interest rates.