There are some very important changes to the Credit Reporting Privacy Code 2004 that have just been announced by the Privacy Commissioner. These changes relate to how a consumers credit rating is reported.

In the past your credit rating was simply reported negatively if you had a loan, you didn’t make your payments on time and it was sent to a debt collection agency.

As of April 2012 that is changing.

In a nut shell, all monthly credit payments will now be reported on. Below is an excerpt from the announcement from the Privacy Commissioner.

[box] In six months time, whether people pay their bills when due and whether they meet their monthly repayments will be recorded by banks and credit providers and uploaded to credit reporters’ databases.

“April next year will bring in some significant change for most of us. The key thing is that your monthly credit repayments will be stored by credit reporters. So, there’ll be a lot more information about each of us gradually building up over time. This should help to give lenders a much better picture of how likely we are to be able to repay a loan,” Ms Shroff said.

Source: Privacy.org.nz full article can be read here[/box]

What this will basically mean, is lenders will now be able to easily report if you are regularly late with your bill payments, or have multiple credit cards and other lending facilities.

If you do miss a payment on your phone, power or hire purchase payment this could adversely effect your abilitiy to secure credit when you come to either refinance, or obtain your first mortgage.

This new system will also give lenders are greater depth in the level of credit a consumer has, including credit that may have kept undisclosed. As an example of the below in Hong Kong when this system was initially rolled out.

[box]On the other hand, banks will gain a lot more information on people with previously undisclosed credit. In Hong Kong when similar rules were introduced several years ago, a number of banks discovered they had customers holding multiple credit cards and who were using one card to pay off another, Stewart says.

Source: mortgagerates.co.nz[/box]

In the finer print credit reporters can only keep the information on their database for 24 months and repayment defaults of less than $100 cannot be list. (source: stuff.co.nz article)

If you are late with bill payments you have until April 2012 to re-arrange your finances, pay down debt and set up automatic payments to demonstrate that you are on time with your payments and be a responsible borrower.

The positives of the new reporting are that those that are on time with payments and show to be a good borrower making smart financial decisions will have easier access to lending facilities and potentially cheaper interest rates. It should also aide in avoiding another financial crisis from people over-capitalising.