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Kiwis In The Dark On Credit Reporting Reforms

Kiwis In The Dark On Credit Reporting Reforms

Three in ten believe criminal record is included on a credit report

Nine in ten New Zealanders remain in the dark about what elements can be included on their credit report and four in ten are unaware they even have a credit record, according to research conducted by credit reporting agency Dun & Bradstreet (D&B).

The research found that only one in ten people could correctly identify all of the elements that can be contained on their credit report. It also revealed that more than 30 per cent of people incorrectly believe their criminal record is included on their credit report, while five per cent mistakenly believe their medical account information is listed. Furthermore, four per cent believe religious preferences are included on their credit report.

These findings follow the 1 April introduction of a more comprehensive credit reporting system. The new system allows credit providers to record additional data elements, including whether people are paying their bills and other financial commitments on time. Criminal, medical and religious information is not included on an individual’s credit record.

Under the new system, credit reports can include the following details:

Existing credit reporting components

Newly-added credit reporting components

Personal identification details (e.g. full name, date of birth)

Date the account was opened and/or closed

Record of defaults

Type of credit account

Bankruptcy details

Credit limit

Number of credit enquiries made, by whom and when

24-month history of repayments made on time and more than one day late

Court judgements

Details of the lender

According to D&B New Zealand’s General Manager, John Scott, the lack of knowledge and understanding surrounding peoples’ credit files is alarming.

“The high number of New Zealanders who are unaware of what comprehensive credit reporting means for them – as well as the existence of their credit report – puts many consumers in a precarious position.

“People who pay late will have this information recorded on their report, potentially damaging their creditworthiness and impacting their ability to obtain credit in the future.”

D&B’s research shows that just 21 per cent of people could identify one item listed on their credit report correctly. This figure drops to 15 per cent for Wellington residents.

Auckland residents and high-income earners have the best knowledge of their credit report, with 11 per cent of people in both categories most likely to correctly identify all the elements contained on their credit report.

Correct identification of credit reporting components

The importance of education in ensuring consumers benefit from a more comprehensive credit reporting system is highlighted in recent international research. The research was conducted for D&B by one of the world's foremost experts on credit information and economic development, the Policy & Economic Research Council (PERC). The study, the first of its kind in New Zealand, utilised credit data from 1.8 million consumers to examine the impact of more comprehensive credit reforms. It revealed that younger people, low-income individuals and new migrants in particular, were key beneficiaries.

Borrowers aged between 18 and 25, which have traditionally had greater difficulty accessing affordable mainstream credit due to a lack of credit history, saw a 46 per cent spike* in their credit acceptance rate. The research showed that this was primarily due to the recording of on-time payments on their credit report, enabling young consumers to establish a good payment history.

“Young people have one of the highest credit rejection rates globally,” said Mr Scott.

“This is an important issue because this demographic can find themselves locked out of the credit market at a time when they need to borrow to fund their home, car or education.

“The PERC study shows that a fairer credit reporting system which records on-time payments as well as late payments can improve their credit acceptance rates but, only 10 per cent of New Zealanders aged 18 to 34 years can correctly identify all the elements on their credit report. This means there’s work to be done to improve people’s understanding and ensure they can obtain benefits from this important reform.”

Low-income individuals also saw an improvement in credit access under a comprehensive credit reporting system. However, over 90 per cent of New Zealanders earning under $40,000 failed to correctly identify all the elements on their credit report.

“A fairer model of credit reporting has widespread benefits for New Zealanders. However, if people do not have a basic knowledge of their credit report, or they fail to check it, they won’t know how they are being portrayed to credit providers,” said Mr Scott.

Consumers can obtain a copy of their credit report for free at www.dnbcreditreport.co.nz.

ends

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