Good Shepherd Microfinance’s recent report about millennials’ awareness of credit reporting and their attitudes towards it, Take Charge: Credit Reporting and Millennials, found 73 per cent were unaware of significant changes to Australia’s credit reporting system.
The new ‘comprehensive credit reporting’ framework means credit reports can now contain a much wider range of information, including your repayment history and whether you paid your bills on time, late or not at all.
So we thought we’d ask two millennials to review the report and give us their thoughts on the new system. Here’s what they told us.
When I was 18 my mum suggested that I get a credit card with a very small limit so I could start building a credit rating. I didn’t need or want a credit card so her suggestion seemed absurd to me at the time. Reading the Take Charge: Credit Reporting and Millennials report fourteen years later, my mum’s comments, and my reaction, are finally starting to make sense.
My mum is from the United States where comprehensive credit reporting has been the norm for many years. As an ‘older millennial’ (25-35 years) growing up in Australia, I don’t like the idea of being in debt and am concerned about what information is shared about me by the businesses I interact with.
The idea that in the future you could build a positive credit rating without taking out a credit card or going into debt is a definite positive. Moving out of home, two of the first things I had to manage were phone and utility bills. The idea that my repayment history of these two bills could be used to build a positive credit history seems like a real opportunity, particularly for people who are excluded, either by choice or access, from traditional credit products.
What does concern me, is where else this alternate data will come from in the future and if I will know if it impacts me positively or negatively. Take Charge raises some very interesting questions around the privacy and sharing of information that I think all consumers, particularly millennials, should be aware of now and in the future. Will I be charged a higher interest rate on a car loan if I make a purchase or use social media at 3am on a Saturday night? Will access to my Facebook contacts be used to influence credit making decisions or just to verify my identity? And will I have the right to choose whether I provide this information to credit providers or not?
The rate of innovation is increasing at a far greater rate than regulation so we need to be informed about any changes that impact our ability to access credit. However with 73 per cent of millennials being unaware of the changes to comprehensive credit reporting that have been in place since 2014, we have an uphill battle on our hands. A battle which is not only the responsibility of consumers, but also of key stakeholders, including government, credit reporting agencies, credit providers and consumer advocates, to ensure greater awareness and understanding of the changes to the credit reporting system and their potential impacts now and in the future.
When I read Take Charge two things crossed my mind instantly: firstly, as a young millennial (18-24 years), I’m still not exactly sure how credit reporting affects me. My second, slightly panicked thought was, does this mean that when I pay my phone bill late every month it will be recorded on my credit report? In case you’re also wondering, the answer is not yet but possibly in the future.
Whilst the changes to credit reporting may sound daunting it’s not all bad news, in fact young millennials may actually benefit from the introduction of comprehensive credit reporting. With a lack of access to credit products, young people and other traditionally ‘credit invisible’ people such as migrants and early school leavers often find it tough to develop a strong credit rating.
The uptake of comprehensive credit reporting may eventually mean the inclusion of alternative data in our credit reports. The inclusion of payment habits for telecommunications and utility accounts would allow millennials to better establish their creditworthiness. The use of this additional data in credit reporting would mean that younger people will be able to build a credit history by simply taking out a phone plan or electricity account, without actually accessing credit products, placing them in good stead for the future when they may look to take out a personal, car or home loan.
However, with the report showing 40 per cent of millennials are unaware of what a credit score is and 73 per cent are in the dark about changes to our credit reporting framework, it is important to note many young people may unwittingly establish poor credit ratings. Efforts to increase awareness of comprehensive credit reporting are therefore vital to ensuring millennials avoid poor credit reports.
Tags: comprehensive credit reporting, comprehensive credit reporting. debt, credit file, credit report, credit score