Total Credit Card Limits to Affect Credit Rating from 1st July

Qroozn on 09/02/2018 - 06:59
Last edited 09/02/2018 - 09:50 by 1 other user

So I heard this on the radio and then went to check online.
From July 1st lending institutions will be forced to look at the total of your credit card limits (disregarding whether you pay them all off on time or not)

I would like to share something with you

Interesting to read that the Average “ TOTAL credit card limit” is $9,000

Such is the ozbargain life that mine is $35.000.
-15k Citibank Signature for life (was great rewards, insurances, and still free)
- 5k 28 Degrees MasterCard (foreign transactions)
-15k ANZ Black ( great bonus airline/reward plus introductory points).

Perhaps the ozbargain credit card hoarding is coming to an end.

Financial

Comments

- - - callum9999 on 10/02/2018 - 12:00
      
      +1
      
      @autolux: It is indeed more complex than that - which is precisely why they look at MUCH more than "4x credit card $40k limit OK denied".
      
      What on Earth makes you think they don't?
FirstWizard on 09/02/2018 - 10:51

+1

I have an AMEX platinum Charge card, which does not have a preset credit limit. It seems "unlimited" but the back-end algorithm determines if the charge is approved on a case by case basis. I dunno how they'd be considering such cards!
- CyberMurning on 09/02/2018 - 11:30
  
  -3
  
  wow.. so more powerful that that black centurion card? you must be the highest paid ozb member!
  
  https://www.creditcardinsider.com/blog/the-american-express-…
  - FirstWizard on 09/02/2018 - 13:38
    
    +2
    
    Not at all. It's one tier lower than the Centurion. But the credit system works the same way for both cards.
    - lachhelix on 11/02/2018 - 03:24
      
      I'm with Diner's Club and have a charge card, similar concept I think
- jmal4580 on 12/02/2018 - 17:47
  
  Also would love to know how this works on the AMEX Platinum Charge with the revised Credit reporting system..
Chubbsmcfatflabs on 09/02/2018 - 11:55

+8

When I used to work in credit approval, we were told to take into consideration total maximum debt irrespective of whether its fully drawn. This is as the servicing ratio for that debt is a function of what your income is. You may have heard the rule that no more than 30% of your income should be allocated to debt servicing.

The flaw in this is that the income used for the calculation used to be GROSS income. eg Income $100k a yr, Debt servicing max $30k a yr.

That was a few years ago and I have been out of Lending for a while. I have never understood how people get loans these days for million dollar houses, or get 10's of thousands of dollars on the CC. I still can't. To have a million dollar mortgage you are paying nearly 5k a month over 30 yrs (at approx 4.2%). Thats insane IMHO. I get paid pretty well, and my wife doesn't work and I have 2 kids. I don't know where the $$ come from to service these type of loans.

It seems to me that the lending policies have been relaxed so much that it is an accident waiting to happen.

Now this change relating to credit scoring I think is a good thing to a point, but I don't agree on including billing for utilities as people are busy and forget stuff. I have been guilty of that myself. It would seem silly that I could have credit declined because I forgot to pay an $60 ph bill, yet be in a $200k a year job and own my own home…
- Ti-au on 10/02/2018 - 18:22
  
  +2
  
  I don't know where the $$ come from to service these type of loans.
  
  You answered your own question. ;)
  
  from their parents pocket. or from dealing drugs. pick one.
  
  Or the fact that their partner works and has a job that pays anywhere from $40k to $120k
  
  It would seem silly that I could have credit declined because I forgot to pay an $60 ph bill, yet be in a $200k a year job and own my own home…
  
  Thats the big issue - now u better pay on time within 30 days or u are screwed.
  
  Now this change relating to credit scoring I think is a good thing to a point
  
  IMHO the new credit scoring is going to be f****** disaster for Aust.
CyberMurning on 09/02/2018 - 12:02

"I don't know where the $$ come from to service these type of loans."

from their parents pocket. or from dealing drugs. pick one.
- nightelves on 09/02/2018 - 12:51
  
  +1
  
  you forgot to include all the savings made from Ozbargain over the years.
  - CyberMurning on 09/02/2018 - 13:23
    
    saving? ohh you must be new. ozb making ppl spend more….
    maybe you were talking about the saving money that you used to buy stuffs you see on ozb?
    - nightelves on 09/02/2018 - 13:32
      
      I’ve made a decent profit from all the eneloops and points I’ve gathered pver the years, not to mention freebies along the way. To me that’s savings already :)
stargalaxy on 09/02/2018 - 17:36

Merged from Is it time to cut up Excess credit cards?

Saw this article on SMH.

I have 4 credit cards but always pays on time, apparently, even this is not going to help to maintain credit score from 1/7/18.
- Cluster on 09/02/2018 - 17:49
  
  I have four cards and will be reducing the balance on each one. Citibank gave me a card with a ridiculously high limit ($35k) that I will never come close to using.
  
  Chasing interest free deals and special offers has caused me to build up a collection of cards. I called NAB a year ago to cancel one of the cards as an annual fee was introduced but the call center worker flat out refused to follow my instructions. Eventually I kept the card when offered a fee free year, but this year I will surely close the account. "Please close the card, effective immediately" might have to be repeated a dozen or so times.
- flagger on 09/02/2018 - 17:52
  
  What's a high credit limit though?
  - [Deactivated] on 09/02/2018 - 17:55
    
    +1
    
    im sure the avg on ozb is around 100k each
  - ronnknee on 09/02/2018 - 17:56
    
    +1
    
    Subjective I guess. I suppose if you max out the credit limit and you struggle to pay it off with your savings and the following month's income, then yea it's pretty high.
  - stargalaxy on 09/02/2018 - 17:59
    
    I think have to be measured against after tax income, my opinion is 50% or more of aftertax income is high.
    - volcanoeqcycle on 09/02/2018 - 22:04
      
      "His office released draft legislation on Thursday afternoon with measures including a $2.1 million fine if the banks don't comply."
      
      I'm sure the 'big 4' are shitting themselves. Wouldn't surprise me if this takes a lot longer to take effect. It's been dragging on for years anyway.
- Elwes on 09/02/2018 - 18:01
  
  +2
  
  I saw the article too. It's not clear how much that journo understands the algorithms used to calculate credit scores.
  What's likely correct is that lenders will no longer give you a new line of credit if you already have high limits. But that doesn't mean your score is hurt just by having a high limit. Everyone keeps saying this will be like the American system, and that sounds right since two of the three bureaux here are also among the big three in America. Well, there the algorithms are based partly on credit "utilisation". That means if you have a high limit but only use a little (<25%), it has a positive effect on your score.
  
  Maybe these journos know something I don't but if it is like the American system, the smart thing to do will be to keep your high credit limit and reduce it just before you apply for a big loan.
  - stargalaxy on 09/02/2018 - 18:19
    
    +1
    
    Hopefully someone here works in a credit rating company like Veda and gives some insights about the new scoring system. My concern is mainly that the existing home loans suddenly become more expensive if my credit rating drops as it is variable rate, credit cards I can just cancel if needed to but stuck with the home loans for a long time to go.
    - John Kimble on 09/02/2018 - 18:30
      
      Huh?
      - cheapjunkie on 09/02/2018 - 18:42
        
        @John Kimble: Nah
    - Ti-au on 10/02/2018 - 18:42
      
      Ahhh… you have guessed what is really happening :)
      
      Remember to thank the Politicians who bought it in :)
  - okwombat on 09/02/2018 - 18:59
    
    +1
    
    Yes, this is what I thought also based on the American system - that high credit limit with a low utilisation rate should lead to a better credit score. It shows that you a trustworthy in the eyes of other lenders while having a low risk of getting into too much debt.
    When I saw the articles that a high credit limit would negatively I was surprised and could only guess the author knew something I didn't that would make the Australian version different. I hope they are wrong.
    - callum9999 on 10/02/2018 - 07:33
      
      It's not as simple as that… While having a low utilisation shows you aren't "desperate for credit", that has to be balanced with future changes.
      
      You can hold a perfect credit record for 50 years, suddenly fall on unexpected hard times then start defaulting. The level of exposure therefore needs to be included in the calculation.
- Toons on 09/02/2018 - 18:50
  
  Yes every extra card you have is classified as debt when applying for loans or even changing lenders
  
  it makes no difference if you only spend 10 dollars on it the fact is you have the potential to rack up in the case above 35k immediately so it decreases your borrowing capacity and people get caught with this and end up having to take mortgage insurance because the potential outgoings a month has been inflated by unnecessary cards.
  
  Your credit rating is about your ability to service the loans you have.
  
  Don't make late payments.
  Don't accept high limits just because they offered it to you. (This is part of what the royal commission is looking into drawing people into debt they can't pay off)
  Buy what you can afford.
  
  In an emergency water heater blows up as an example it's an unexpected expense you can get your limit increased temporarily
  
  The banks already have the amounts they are prepared to give you without question. so keeping high capacity cards are a bit redundant.
- R-Man on 09/02/2018 - 19:02
  
  you clicked b8 m8
- CyberMurning on 09/02/2018 - 19:16
  
  in dilemma now my citi is top of the range with no annual fee for live but with credit $15,000 (minimum they allow) this is too much but so many people telling me not to close this CC as they dont and will not offer free annual fee for live anymore (normal annual fee $395)
  - THICKnSLOW on 10/02/2018 - 12:39
    
    Do you need to transact on your account to keep it active? I agree with the people, keep it open and don't use it, deal with any issue later on. Don't kneejerk-react due to some article written by a journo about an event in 4 months time..
    - CyberMurning on 10/02/2018 - 13:35
      
      Nah it's credit card so no need to use to keep active.
- burningrage on 09/02/2018 - 22:08
  
  If I can make a counter argument…
  
  Many of us may have those fee-free-for-life Credit Cards such as Citibank Platinum which is now being upgraded to Citibank Signature. Another one I can think of is ANZ Fee Free for Life. Over time, these institutions would send invitations to increase the credit limit.
  
  If you close them now, you would never get a fee-free-for-life again.
  
  Another thing is, they sometimes offer balance transfers (BTs) at 0% or maybe even 2%. If you have been rejecting the invitations, you couldn't take advantage of these offers. One of the primary benefit of this BTs is that it can serve as an effective interest rate swap from say up to 5% (which is charged to Interest Only Investment Loan) to as low as zero. That would save heaps of interests.
  
  So my opinion is if you don't intend to swap home loans for some time, then credit score would be next to useless. I cannot imagine if you have a strong balance sheet and get rejected for a mobile phone contract. I'd like to hear a millionaire got rejected for a utility credit just because he has heaps of high limit credit cards.
  
  Btw, I think RBA has been doing an extremely disservice to Australian people starting from Credit Card Surcharging (even if they are nerfed right now but I still have my local eateries charge 2% as a "F**K you, RBA. Come jail me if you can") and introducing Credit Scores.
  - CyberMurning on 10/02/2018 - 13:36
    
    That's me too. Free for life.
    Mine upgraded from Platinum to signature now infinite. Weird is, cannot find infinite card on citi website.
    - burningrage on 10/02/2018 - 15:01
      
      I think Infinite = Citi Prestige. I dumped it because it changed the int free days from 55 to 44.
    - CyberMurning on 10/02/2018 - 18:27
      
      @burningrage: similar but not 100 pct same i think. only 1 complementary lounge for my infinite, also no free transfer. doesnt matter
    - kelea on 11/02/2018 - 09:16
      
      @dragonindespair: Do you get the complimentary hotel nights? Otherwise, sounds like Signature is still better than the Infinite card offered with 2 Priority Pass visits?
    - CyberMurning on 11/02/2018 - 09:35
      
      @kelea: no hotel, just one priority pass I think. Well I don't use them much anyway.
    - kelea on 11/02/2018 - 09:43
      
      @dragonindespair: That's interesting, thanks
    - tqf8h on 11/02/2018 - 16:20
      
      How recent were you upgraded from platinum to signature and infinite? I have a platinum free for life with limit of $30k and have been waiting for a long time to get upgraded, they said no the last time I asked. Did they just offer the upgrade or did you need to ask?
    - CyberMurning on 11/02/2018 - 18:42
      
      @tqf8h: can't remember, got infinite years ago. No didn't ask they just send new card with different name.
CyberMurning on 10/02/2018 - 18:26

btw my latest credit savvy score just arrived: 814 excellent!
- chumlee on 10/02/2018 - 18:31
  
  Lenders don't all use the same one though
  
  I think getcreditscore.com.au which is owned by equifax is the most commonly used one
  - Ti-au on 10/02/2018 - 18:48
    
    +2
    
    Banks run their own private credit scoring system (based on a whole heap of extra factors), they don't really rely on the one we get.
    - sw0rdy on 12/02/2018 - 07:31
      
      Yes and no. A bank will still make an enquiry into your credit history to ensure they aren’t missing anything - particularly if you’re a new customer to the bank.
      
      Getcreditscore will give you the most accurate rating as Equifax is by far the largest credit bureau.
    - John Kimble on 12/02/2018 - 09:11
      
      +1
      
      @sw0rdy: yes, credit history, not necessarily credit score
    - sw0rdy on 12/02/2018 - 11:59
      
      +1
      
      @John Kimble: Yes, but your credit score is based off your credit history - so it should give you a fairly good indicator of where you sit.
    - John Kimble on 12/02/2018 - 12:07
      
      @sw0rdy: Yes, that's the whole point of it. The thing is that banks don't trust it completely (yet) or like to verify with their own analysis. That's what we are trying to point to out.
  - CyberMurning on 10/02/2018 - 19:00
    
    Agree. My getcreditscore.com.au is 562 average. Damnnnnnn
clement1986 on 10/02/2018 - 20:26

CCR will make it very hard to lie about your credit status. A piece of advice, if you don't need the credit such as high amount credit card, cancel/reduce it instead of keeping it as this number will be considered as your debt when creditors assess your next credit applications. It doesn't matter if you maxed out that credit card or not.
- sj2can on 11/02/2018 - 14:26
  
  +1
  
  Hi Clement, just letting you know the banks already view the limit as a liability when taking into account servicing. So a $10,000 limit that hasn't been used at all is still seen as a $10k liability with ~ $300 repayment per month.
  - ely on 12/02/2018 - 08:33
    
    They do… but you can cancel the card, get the loan, then go and open the card again.
marquise on 10/02/2018 - 23:34

I've noticed it's no issue for me to spend above my credit limit on my amex plat edge, as long as I'm not over the credit limit at statement date. Usually, my direct debit payment goes through a week or so prior to monthly statement being issued, so that drops my balance lower. I don't get charged an over limit fee for this way. Hence, I've not had a need to take up an increase in credit limit.

Just keen to know, with the new system, whether I can still do it this way?
Hogg on 11/02/2018 - 10:46

This is unhappy news for someone like me who has only just started taking advantage of churning free 0% balance transfers to use the extra cash for investments.
- Sira on 11/02/2018 - 14:40
  
  Why is that 'unhappy news'? Sounds like you are paying the card off as it gets transferred around. You are repaying loans in a timely fashion and you are building and proving your ability to do this. Unless you are balance transfering every 3 months I can't see the issue…
  - Hogg on 12/02/2018 - 05:21
    
    Oh maybe I'm misinterpreting the changes. I thought now banks will be able to see your existing credit card limits.
    
    While I have never paid any credit card interest, I thought that these changes would make it harder to be approved for subsequent credit cards because of my existing available credit.
    
    Also I usually overstate the amount I owe on the credit card I want to BT to so that I can withdraw excess over the limit as cash, essentially getting 0% loan. Would they now know then BT target card's limit and thus no longer pay in excess?
T0ken on 11/02/2018 - 12:11

It’s a very light article on CCR.
The July date is only a requirement to have at least 50% of their portfolios contributing to CCR.
Contributors may include more than the minimum requirement however we don’t know yet.
In short more data will be available, thus the opportunity to exclude some items from applications is going to disappear.
On a whole CCR is intended to encourage responsible lending as a more complete picture of the applicant is available via third parties.
- Ti-au on 11/02/2018 - 14:44
  
  On a whole CCR is intended to encourage responsible lending
  
  Perhaps.
  
  Parliament does things only for the benefit of donors, and you can bet your bottom dollar, that by the end of this (2-5 years) it will benefit the Banks infinitely (to an infinite extent or amount; without limit) more than the consumer.
  - ely on 12/02/2018 - 08:40
    
    It's not zero sum; it can benefit consumers and lenders. The improved information may allow lenders to more accurately assess risk and price things accordingly. This will be good for them and good for borrowers overall - some will have more difficulty getting credit, but with more accurate risk assessment bad debt will go down and lenders will be able to reduce rates (while I'm sure the big four won't, more competitive ones will).
    
    It'll suck if you actually are a bad risk. Unless you were lying about your credit limits before (something you're asked for on any credit application already) then your credit limits should have no impact on your ability to access credit under the new system.
    - Ti-au on 12/02/2018 - 11:23
      
      +2
      
      This argument is put out by supporters of credit reporting - showing how great it is, but in my opinion its a false one.
      
      Say you have 5 segments (A,B,C,D,E) A being the best (credit score 800+ or above, etc). The banks will tier the rate so that As get the best score, etc.
      
      But the thing is that defaults in the Australian market are already very low - around about 1.5% of mortgages (ironically the risk of default is actually quite low). However the banks still have to sell their mortgages to the rest of the world (Securitisation). Those investors are going to still demand their return, as well as the fact we are in a Oligopolistic market which is controlled by the 4 big banks.
      
      So we will get a tiered rate: A= 3.5%; B= 3.69%; C= 3.9%; D= 4.2%; E= 5%
      
      What will initially happen is the consumers on C,D,E will pay a higher rate (ironically hurting the people who need the most help)
      
      Then after the banks have gotten as much profit as they can, they will then move onto the A & Bs, because Australia is in an Oligopolistic market, so one bank will put up the rate for B's and the others will too, then a Bank will put up the rate for As and the others will too.
      
      New players (competition) won't get anywhere because:
      1) the Aussie banks basically control the rate at the securitisation level to a large degree.
      2) ironically a lot of new players (competition) get loans off the Big 4 to onlend or to provide a float before securitisation occurs.
      
      So no it won't just suck if you're a bad risk - it will suck completely if your a bad risk (D&E =4.2%+!), suck bad at B & C (because you are just paying the same or a slightly higher rate than now), and may or may not suck if you are A (the top 20%). So for 80% of people out there it will suck more.
      
      And remember the default rate is still only 1.5%. So much higher interest rates, for little to no risk for the banks (because interest rates will always be higher then default rates).
      
      Also in credit scoring having a big income helps - so it will suck for poor people :)
      
      I mean if I was a bank I would love it because now I can have 5 different rates to put up or down - imagine the consumer trying to keep track of that! They won't :)
      
      And of course you forget how easy it is to fall from A to B = miss 1 bill in 30 days, and you can be moved onto a new rate, for not just mortgage but for CC, car loan, etc.
      
      None of this will happen immediately - but long term it will go this way because it maximises profits.
      
      You should see the movie the Big Short, and listen to the comments made by Steve Carell who plays Mark Baum at the very beginning (and his discussion with the Asian fund manager as well).
    - ely on 12/02/2018 - 12:55
      
      @luciferaust: I like your cynicism and would tend to think the same myself, except that the banks could already do this if that was their goal (and if they thought they could make a killing like that they'd be rushing to provide this credit info, rather than dragging their heels). They could already do this, but their risk models would be a bit shit given how crap the information is - but that doesn't actually matter, they could still split borrowers along those lines and it doesn't really matter how accurate they are.
      
      This credit reporting changes doesn't change the viability of such an approach, all it does is mean that risk can be more accurately assessed. It'll suck for those with poor credit history (and you're right - that will generally target those with lower incomes), but good for those with good history.
      
      Lenders outside the big four already capture a decent chunk of the market; you'd be insane to go to one of them for mortgage unless you have sufficient leverage in some way to beat them down to a competitive rate, they're not even close. That's only going grow if the big four continue to exploit their position and prompt people to look around and realise how badly they'be being screwed.
      
      We agree how crap the lenders are (and +1 for that), I just don't think this offers them an opportunity to be any more crap than they already are.
    - Ti-au on 12/02/2018 - 17:22
      
      -2
      
      could already do this
      
      They actually couldn't (thanks to the privacy act).
      
      all it does is mean that risk can be more accurately assessed
      
      BS. During the last GFC which nations had positive credit reporting? US and UK. Which nations did the worse (with banking collapses AND people not paying loans)? US and UK. What countries did better? France, Aus & NZ, which all had negative credit reporting (IMF Report: "French banks were not immune but proved relatively resilient to the global financial crisis"). And before you argue that Mining saved us - mining investment actually fell 0.77% during 2009.
      
      Did negative credit reporting save us? No, of course not; But I would argue that positive credit reporting made the crises worse.
      
      If risk was more accurately assessed with positive reporting - why did the US and UK have the biggest mortgage defaults?
      
      Lenders outside the big four already capture a decent chunk of the market;
      
      Very much incorrect.
      
      That's only going grow if the big four continue to exploit their position and prompt people to look around and realise how badly they'be being screwed.
      
      Really? Market Concentration for the Big 4 is around 82.7% (could be out by a couple of quarters - but accurate enough) and they have the highest margin on rate for 20 years or so. Even if they lose 5% per year, it would take over 16 years to lose all their customers.
      
      How about this as a statistic: 45% of children who participate in the Dolarmite account stay as customers to CBA for their lifetime.
    - Ti-au on 12/02/2018 - 17:57
      
      -1
      
      If you want to go for a more extreme example:
      
      In Japan it is said that - "credit data is vertically siloed" (i.e. not shared) and "Some lending is even done on a name basis".
      
      From the start of GFC to the end defaults were less than 1%. And for most Japanese the GFC had little to no impact (2008 Article: "In Japan, Financial Crisis Is Just a Ripple"); It was only when exports markets crashed (as US/Uk/EU consumers and international businesses stopped buying stuff) did Japan feel pain.
      
      The main defaults were in the CMBS (Commercial Mortgage Backed Securities) and pretty much because they could not obtain new loans when they were coming to maturity (commercial loans usually last only 10 years and then rolled over to another 10 year loan), rather than repayment default. We had the same thing happening here. From my understanding this is the main reason for a rise in "bad debts" in 2010.
    - Ti-au on 12/02/2018 - 18:37
      
      -1
      
      @luciferaust:
      
      We agree how crap the lenders are (and +1 for that), I just don't think this offers them an opportunity to be any more crap than they already are.
      
      You should read up on the predatory lending market in the US if you don't believe they can get any more crap - where do u think NINJA loans came from?
      
      I don't believe that its the Big 4 pushing this, rather its UBS and other international banks (which hold approx 50% of our mortgage debt in spvs or trust, etc) so we will become more like the US Market (i.e breaking up 'prime RMBS' so to sell more yield to investors, and so higher fees, etc).
    - ely on 13/02/2018 - 07:55
      
      @luciferaust:
      
      You've missed my point here - positive credit reporting isn't required for them to do that bracketing, so the privacy act doesn't prevent them from doing what you describe with negative reporting.
      
      Lenders outside the big four already capture a decent chunk of the market;
      
      Very much incorrect.
      
      We disagree on the amount required to be a "decent chunk of the market" then, because from your own stats if the big 4 are 82.7% then the rest are 17.3% and I would say that's a decent chunk of the market. There's not really any point in arguing here as we're not really in disagreement.
      
      And yes, poor behaviour from the big 4 will continue to grow that number. TBH I don't have a lot of sympathy for those foolish enough to be with them already, there are better alternatives and its the consumers' fault for choosing to continue to get screwed.
      
      I think your following arguments attempting to tie together positive credit reporting with the GFC are pretty bizarre and lacking in evidence, with some desperate straw clutching and flawed correlation is causation reasoning.
      
      You should read up on the predatory lending market in the US if you don't believe they can get any more crap
      
      You need some remedial reading comprehension classes, or possibly just to stop deliberately constructing strawmen to attack. I didn't claim that they couldn't get worse, just that positive credit reporting doesn't offer them an opportunity to do so.
      
      Positive credit reporting is good for consumers, in that it allows positive information about your behaviour to be reported instead of only the negatives. This will lead to more accurate assessments of credit worthiness, which will be good for those that are more credit worthy, and moderately good for consumers as a whole due to a lower level of bad debt and hence lower overall rates will be possible with the same margins for lenders.
    - Ti-au on 23/02/2018 - 06:33
      
      You've missed my point here - positive credit reporting isn't required for them to do that bracketing,
      
      Currently our market bundles loans in 90%prime+10% specialist (or subprime) - thats it - that is the great Australian RMBS.
      
      Positive credit reporting (creating FICO score) is the only way they can break it up into trenches of AAA, AA, AA-, BBB and BB- security as it provides the benchmark you need so that everyone can assess the risk.
      
      With negative credit reporting they cannot break it up because the benchmark is you either have a credit default or you do not (our banks do not release their proprietary credit marking/scores, and they don't use the current credit score you can order online; some lenders say they don't even credit score - Macquarie Bank, CUA, Gateway, Bluestone, Pepper, LoanAve).
      
      So yes you actually need need positive credit reporting for 'bracketing' when selling securities.
      
      decent chunk of the market.
      
      Each big 4 bank has basically more market share than the rest of ALL the little lenders combined, especially when you consider some people are forced to go to 3rd tier lenders due to minor credit impairment, so when you take them out, all the little lenders could be have a market share closer to 11%. So that is not a decent chunk.
      
      TBH I don't have a lot of sympathy for those foolish enough to be with them already, there are better alternatives and its the consumers' fault for choosing to continue to get screwed.
      
      With positive credit reporting your score will determine your rate - you will get the same rate wherever (because AA- Interest Rate = credit score (FICO) of 680 = Interest rate (4.8%) you will pay). The only difference will be in margin the banks will charge.
      
      I think your following arguments attempting to tie together positive credit reporting with the GFC are pretty bizarre and lacking in evidence, with some desperate straw clutching and flawed correlation is causation reasoning.
      
      So why is positive credit reporting being changed? Positive credit reporting is being encouraged/pushed by big firms involved in the securitisation market.
      The big trading firms want us to follow the US market so they splice up our loans into RMBS, CDOs and CDOs2 (all AAA rated) and make fees off them, and then sell synthetics or insurance and generate even more fees.
      
      After the trading banks slice them up into RMBs and CDOs they then sell them to investors and move them off balance sheet, so they don't really have to care about the loan quality too much. This will make our banking system much safer, with lower defaults apparently because we will be so much better at working out risk than before.
      
      Now it gets even better - there is actually an added incentive to make risky loans - "The lower the credit score, the better, because Wall Street needed risky loans to generate yields that would entice investors. They pushed lenders to make loans to people with low credit scores, which became shorthand for risky loans." Which leads back to my points about the GFC - you need to positive credit reporting to determine the credit score to splice the loans, which you can't do with negative credit reporting (they are either risky and can't borrow or they can borrow). Is it joyous they can now do the same as before and push risky loans.
      
      Now I'm not saying the positive credit reporting is responsible for the subprime crises and then the declining asset worthiness of the underlying product which lead to the GFC, but they are certainly linked. Also it could be argued it hurt the recovery.
      
      Its like saying the Treaty of Versailles was not directly responsible for WW2 and you would be right, but it is linked.
      
      Positive credit reporting is good for consumers,
      
      The current system means that if you default on any credit product (credit cards, auto loans, housing, etc) you have 60-90 days to rectify the mistake (usually its 90 days, with the issuing of the second notice), the new system is now you miss one payment within 30 days you are hit with a default.
      
      The 90 days gave people a significant opportunity to fix their issues - that might be find a new job, borrow money (usually from parents, etc) or even put the property on the market. For example it takes on average 10 weeks /70 days to find a new job (some professions much less).
      
      The problem with positive credit reporting is that you will have no time to 'fix' your issues, once you default on the 30th day you have basically defaulted and the bank will mark the credit report. This does 2 things - #1 stop you getting any more credit (even if you fix all your issues (i.e. new job, etc)) and #2 potentially allow the banks to increase your current interest rate on existing debts, thereby increasing the chance of default or force you to refinance (you can't, so you will have to sell).
      
      Take the following example: a programmer working on contract (so big money), his wife was earning a decent income as well.
      They both were working for the same company and he lost his contract and she lost her job - suddenly no income.
      They did what any average person did and went out to get new jobs. They thought they could access their redraw where they had more than $350,000 available - bank says both unemployed = No! This took a bit over 30 days.
      They talk the womens parents, father who (owns a house in Sydney with no mortgage) says no problem. Father gets mortgage on property (LVR of under 5%) and lends them the money, guy pays back all creditors and within a couple of weeks and they get new jobs.
      
      Here is where it gets interesting - after 8 months bank asks them to refi (as it wants Cash for its books). Bank is silly because guy is on higher income and they both don't work for the same company, plus now they opened an offset so they can access the cash anytime. So the bank has actually less risk - but still want to refi. And they do (ironically the 2 credit cards and auto loan was fine - I didn't realise CC debt was less risk than house debt!).
      
      Under the wonderful positive credit reporting system which you so love, no banks would of refinanced them as they had a number of defaults in the first 30 days (as their wonderful bank assed them around with promises). Then when they bank asked them to refi, and they could not, they would have been forced to sell their home.
      
      This is similar to the US where banks would ask the people to refi and when they couldn't the banks would force the sale of the property (and with many take backs, this pushed the price down - https://cdn1.sph.harvard.edu/wp-content/uploads/sites/1656/2…).
      
      Another issue I could see happening more often with positive credit reporting is defaults lodged by the ATO - currently the ATO has to take legal action for a default to be applied for an unpaid tax debt. Not anymore, new rules of marking credit file is: is overdue by more than 90 days; above $10,000; is not effectively engaging with the ATO to manage its tax debt
      
      Of course who decides what engaging with the ATO means? The ATO does. Now I am sure you think this is great.
      However what happens if the person doesn't believe that the ATO is correct in their assessment? And wish to challenge it, they say to the ATO we will see you in court and then ignores the demands (expecting to see a legal letter when the hearing is) - now the ATO can default him/her even before the hearing (and they will). How fair :) Do you think it will be easy to get finance with a default so you can fight it? Even if you have 10x more in equity than the ATO debt alleges? With positive credit reporting how high will interest charges go to refi?
      
      You might say straw clutching, but I saw how 90 days allowed people to survive and move on during the GFC. You could argue that there is more 'risk', but their current lender already knows their behaviour - they are not going to get any more credit (especially with no job), so the risk has been limited anyway. The 90 days allowed people to survive even with job losses. Some would fail, but the would of failed anyway - so why change the credit reporting system?
      
      in that it allows positive information about your behaviour to be reported instead of only the negatives
      
      Incorrect - positive credit reporting only shows if you have defaulted with 30, 60 or 90 days or if you don't default - they might not even say when you defaulted, just that you did. Negative reporting shows if you defaulted in 90 days or if you don't default.
      
      Perhaps you can tell us how the bank lists positive behaviour?
      
      just that positive credit reporting doesn't offer them an opportunity to do so.
      
      BS - Positive credit reporting completely allowed them the opportunity to do so, otherwise the US housing crash wouldn't of occurred. One could even argue that lenders were lax in investigating borrowers with high-FICO scores because they are the easiest loans to securitize. LVRs have shown a much better measurement on getting your return back on default (which fico (and the banks) completely ignore because it goes off balance sheet anyway).
      
      This will lead to more accurate assessments of credit worthiness,
      
      According to one CEO of a lending company (Operates in 49States)- “FICO scores are not the best predictor [of default]. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores".
      
      which will be good for those that are more credit worthy, and moderately good for consumers as a whole due to a lower level of bad debt
      
      There is much higher bad debt / defaults in the US market than here, except on those with extremely high FICO scores, so it does not produce a low level of bad debt.
      The irony is that even with "more accurate assessments of credit worthiness" ALL US consumers pay higher rates than Australia because the default rate is higher.
      
      and hence lower overall rates will be possible
      
      Rates are higher in the US, even for the best FICO scores.
      
      You have also ignored my point that big4 have 80% market share. Where is the competition to force rates down? The big 4 banks are the price makers, and other banks take their cues from that - (for example UBank have low rates and is owned by NAB - so much for Competition!). How does this failure of competition impact rates?
    - ely on 23/02/2018 - 08:25
      
      @TheMostHated:
      
      So yes you actually need need positive credit reporting for 'bracketing' when selling securities.
      
      You just don't; you can bracket based on anything. You could create brackets based on the first letter of the applicant's name - it wouldn't be any good, but you could definitely do it. You're deluding yourself that positive credit reporting is a requirement for this.
      
      Each big 4 bank has basically more market share than the rest of ALL the little lenders combined, especially when you consider some people are forced to go to 3rd tier lenders due to minor credit impairment, so when you take them out, all the little lenders could be have a market share closer to 11%. So that is not a decent chunk.
      
      As noted, there's no point in a pedantic argument about the meaning of "decent chunk".
      
      With positive credit reporting your score will determine your rate - you will get the same rate wherever (because AA- Interest Rate = credit score (FICO) of 680 = Interest rate (4.8%) you will pay). The only difference will be in margin the banks will charge.
      
      Their assessment of your credit worthiness can already be used to determine your interest rate. Nothing new here.
      
      So why is positive credit reporting being changed? Positive credit reporting is being encouraged/pushed by big firms involved in the securitisation market.
      
      As discussed, better assessment of risk, which is mutually better for the consumers and lenders.
      
      After the trading banks slice them up into RMBs and CDOs they then sell them to investors and move them off balance sheet, so they don't really have to care about the loan quality too much. This will make our banking system much safer, with lower defaults apparently because we will be so much better at working out risk than before.
      
      You're really trying to have your cake and eat it here, arguing that positive credit reporting is somehow needed because it gives more accurate assessments of risk… and yet somehow also doesn't make us any better about working out risk. Pick a lane, which is it?
      
      Now it gets even better - there is actually an added incentive to make risky loans - "The lower the credit score, the better, because Wall Street needed risky loans to generate yields that would entice investors. They pushed lenders to make loans to people with low credit scores, which became shorthand for risky loans." Which leads back to my points about the GFC - you need to positive credit reporting to determine the credit score to splice the loans, which you can't do with negative credit reporting (they are either risky and can't borrow or they can borrow). Is it joyous they can now do the same as before and push risky loans.
      
      So you agree (here, at least) that it does lead to more accurate assessment of risk, thanks. You think that having a more accurate assessment will cause them to lend to the less credit worthy though. I'm not convinced of that assessment, I think you're giving too much credit to current bank behaviour - many of those high risk borrowers are already getting loans.
      
      The current system means that if you default on any credit product (credit cards, auto loans, housing, etc) you have 60-90 days to rectify the mistake (usually its 90 days, with the issuing of the second notice), the new system is now you miss one payment within 30 days you are hit with a default.
      
      This is a separate issue from positive credit reporting - it's possible to have positive credit reporting without changing these periods. However there is already (pre PCR) a recognition of a difference between late payment and default, so is this really a change? Can you link me to some more details about these specific changes?
      
      Take the following example: a programmer working on contract (so big money), his wife was earning a decent income as well.
      They both were working for the same company and he lost his contract and she lost her job - suddenly no income.
      They did what any average person did and went out to get new jobs. They thought they could access their redraw where they had more than $350,000 available - bank says both unemployed = No! This took a bit over 30 days.
      They talk the womens parents, father who (owns a house in Sydney with no mortgage) says no problem. Father gets mortgage on property (LVR of under 5%) and lends them the money, guy pays back all creditors and within a couple of weeks and they get new jobs.
      
      This sounds very specific… you?
      
      Here is where it gets interesting - after 8 months bank asks them to refi (as it wants Cash for its books). Bank is silly because guy is on higher income and they both don't work for the same company, plus now they opened an offset so they can access the cash anytime. So the bank has actually less risk - but still want to refi. And they do (ironically the 2 credit cards and auto loan was fine - I didn't realise CC debt was less risk than house debt!).
      
      You'll need to explain this in more detail, I don't really understand what was going on here.
      
      Under the wonderful positive credit reporting system which you so love, no banks would of refinanced them as they had a number of defaults in the first 30 days (as their wonderful bank assed them around with promises). Then when they bank asked them to refi, and they could not, they would have been forced to sell their home.
      
      This is simply not true. Banks have an enormous amount of discretion over who they lend to and some late payments (or even defaults, which it sounds like those are not) would not stop banks lending if there was an explanation for them and things were otherwise fine. Source: I work for a company that, among other things, owns a mortgage broker business and lenders will already lend to almost anyone.
      
      This is similar to the US where banks would ask the people to refi and when they couldn't the banks would force the sale of the property (and with many take backs, this pushed the price down - https://cdn1.sph.harvard.edu/wp-content/uploads/sites/1656/2…).
      
      Your link has come through truncated. The lack of non-recourse loans here in AU makes the incentives very different for our banks, forcing a home sale when the borrower is capable of making repayments (even if they're in negative equity) would be insane for a bank here because it would force them to make a loss instead of compelling the borrower to repay it. Current house value doesn't matter if the borrower has to repay the full amount they borrowed.
      
      Another issue I could see happening more often with positive credit reporting is defaults lodged by the ATO - currently the ATO has to take legal action for a default to be applied for an unpaid tax debt. Not anymore, new rules of marking credit file is: is overdue by more than 90 days; above $10,000; is not effectively engaging with the ATO to manage its tax debt
      
      To be fair, if you're defaulting on debts to the ATO it should effect any assessment of your creditworthiness.
      
      Of course who decides what engaging with the ATO means? The ATO does. Now I am sure you think this is great.
      However what happens if the person doesn't believe that the ATO is correct in their assessment? And wish to challenge it, they say to the ATO we will see you in court and then ignores the demands (expecting to see a legal letter when the hearing is) - now the ATO can default him/her even before the hearing (and they will). How fair :) Do you think it will be easy to get finance with a default so you can fight it? Even if you have 10x more in equity than the ATO debt alleges? With positive credit reporting how high will interest charges go to refi?
      
      Agreed, it should not count as a default if you're challenging it (and should not be counted if your challenge ends up successful).
      
      You might say straw clutching, but I saw how 90 days allowed people to survive and move on during the GFC. You could argue that there is more 'risk', but their current lender already knows their behaviour - they are not going to get any more credit (especially with no job), so the risk has been limited anyway. The 90 days allowed people to survive even with job losses. Some would fail, but the would of failed anyway - so why change the credit reporting system?
      
      No, I agree with you, the changes to time periods are not necessary for positive credit reporting.
      
      Incorrect - positive credit reporting only shows if you have defaulted with 30, 60 or 90 days or if you don't default - they might not even say when you defaulted, just that you did. Negative reporting shows if you defaulted in 90 days or if you don't default.
      Perhaps you can tell us how the bank lists positive behaviour?
      
      Sure, NAB has started providing (so far incomplete) PCR data to Experian, which you can access via creditsavvy.com.au. I can see one card that I've had with them listed, the period that it was held for and my repayment history for that card - which is 100% on time. That's positive behaviour, because it's reporting the positive information that I made all of my payments on time.
      
      just that positive credit reporting doesn't offer them an opportunity to do so.
      
      BS - Positive credit reporting completely allowed them the opportunity to do so, otherwise the US housing crash wouldn't of occurred. One could even argue that lenders were lax in investigating borrowers with high-FICO scores because they are the easiest loans to securitize. LVRs have shown a much better measurement on getting your return back on default (which fico (and the banks) completely ignore because it goes off balance sheet anyway).
      
      As discussed, they can do this anyway.
      
      This will lead to more accurate assessments of credit worthiness,
      
      According to one CEO of a lending company (Operates in 49States)- “FICO scores are not the best predictor [of default]. The amount of equity a person has in his home, his debt-to-income ratio, his job stability and his cash reserves are all better predictors than credit scores".
      
      Again, you're trying to have your cake and eat it here.
      
      which will be good for those that are more credit worthy, and moderately good for consumers as a whole due to a lower level of bad debt
      
      There is much higher bad debt / defaults in the US market than here, except on those with extremely high FICO scores, so it does not produce a low level of bad debt.
      The irony is that even with "more accurate assessments of credit worthiness" ALL US consumers pay higher rates than Australia because the default rate is higher.
      
      You're attempting to attribute all of the difference between two markets to once factor, the presence of positive credit reporting, which is ridiculous.
      
      and hence lower overall rates will be possible
      
      Rates are higher in the US, even for the best FICO scores.
      
      See my last comment.
      
      You have also ignored my point that big4 have 80% market share. Where is the competition to force rates down? The big 4 banks are the price makers, and other banks take their cues from that - (for example UBank have low rates and is owned by NAB - so much for Competition!). How does this failure of competition impact rates?
      
      Wait… so UBank does have lower rates, even though it's owned by NAB? And why do you imagine NAB has an off brand "competitor" that offers lower rates? Do you think they'd do that if they didn't see a need to compete on price? Funnily enough I think my own mortgage is also underwritten by NAB somewhere down the bottom of things, again at far lower rates than NAB was willing to offer.
      
      I haven't ignored that point, although it's tangential to the PCR discussion. We agree that the banks are shit and that they'll do bad things given the right incentives. Our essential disagreement is whether PCR offers them more incentives to misbehave - I think they're already shit and this adds nothing to that, you think that PCR will make them behave even worse, although I really can't tell why as you seem to think that PCR is simultaneously useless for assessing risk (and so will have no good effects) but will also allow lenders to effectively reprice things based on risk (so will have bad effects).
Dreamcast on 11/02/2018 - 21:47

I'm in my early 30's and never owned a credit card. Though I've always wondered why most people have one. Is it more so for benefits or to help pay bills, etc until the next pay day or a bit of both?
- Dave Bowman on 11/02/2018 - 22:52
  
  +1
  
  For me it's two things:
  
  1 - I keep everything in my secondary savings account. It's much easier to use a credit card for spending throughout the month, than to continually make sure there's enough in my main account. Then I have another month interest fee to pay off the CC balance, while earning interest on my savings account.
  
  2 - My credit card has no international transaction fees, which is a huge plus when travelling.
- McBanjo on 12/02/2018 - 01:16
  
  +1
  
  Offset account for mortgage so that money serves me better in my account than the credit card company for another 55 days.
- ReverseBias on 12/02/2018 - 01:22
  
  +2
  
  Many people live payday to payday, and yeah, they rely on their credit cards to float them through lean times. In turn, many of those people will have leant on that crutch a bit too hard, accruing a balance on which interest is charged, and adding another bill to the list…which only makes it all the more necessary.
  
  Fiscally responsible people (and savvy fiscally irresponsible people, like OzBargainers) are mostly in it for the deals - rewards points, cashbacks and so-on. If you're going to spend the money anyway, it might as well go through a card that pays rewards - spend on my Amex is roughly equivalent to a 1.5-4.5% cashback in the long run.
  
  I only keep 2 cards - the Amex Platinum Edge, which translates grocery spending into frequent flyer points fairly efficiently (3 points per dollar, with a point worth roughly 1.5 cents when redeemed for flights), and a 28 Degrees Platinum card with no international transaction fees (saves a fair bit compared to letting PayPal or Amazon do currency conversions).
  - Ti-au on 03/03/2018 - 14:32
    
    You forgot a category - (small) business people keep it for the access to credit they couldn't get usually.
Plug on 12/02/2018 - 01:07

I don't have a credit card. Guess I'm stuffed :)
nobarginsarehere on 12/02/2018 - 04:29

-1

35k of credit card limit is crazy, why would you EVER need that?
daft009 on 12/02/2018 - 09:04

I had over $100k in limits, however early in the new year reduced one from $15k to $1k as never used it. bank wouldn't let me cancel it as its "free" with the offset loan.

mostly used for my business so I can collect points which helps me with my work travel
Sharp on 12/02/2018 - 10:53

+1

so it is better to cancel "spare" cards now or after 1 July. Currently cancellations don't appear in my credit report.
- John Kimble on 12/02/2018 - 10:56
  
  Oooo, good question!
whoopdeedoo on 12/02/2018 - 13:02

Damn how am i gonna hide all my investment loans next time….
- Ti-au on 09/03/2018 - 23:05
  
  ?
  
  Any credit you get within a 5 year period is marked on your credit report - and considering you usually access equity to come up with deposit the Banks going to see it.
Ryk on 12/02/2018 - 19:03

$110k total credit card limits here. Owe maybe $7k.
Need to close a few cards after balance transfers.
Sharp on 17/02/2018 - 15:58

+1

I've got an email from creditsavvy today saying "Your credit file now includes repayment history". I logged in to find my credit score dropped from 755 (very good) to 570 (OK)! However, it shows my repayment history perfect (100%). I'm not sure what's going on but I'm not happy with whatever change their doing. I never missed a repayment in my life and I always pay my cc balance in full every month.

Please check your credit score and report here if there are strange changes in your file.
- poko on 18/02/2018 - 11:29
  
  +1
  
  I had the same thing! Mine went from 793 to 555. From what I can tell the repayment history is for a NAB home loan I closed back in March 2016. Strange system!
  - Sharp on 18/02/2018 - 12:08
    
    I'm assuming you never missed a home loan repayment? This doesn't seem right!
    
    I was planning to apply for a car loan this week now I'm doubting that decision.
    - poko on 18/02/2018 - 13:20
      
      That's a correct assumption. Never missed a repayment.
      Was your new info for NAB as well? My new info didn't list a finance provider and I deduced that it was NAB based on the application date and the last repayment date.
    - Sharp on 18/02/2018 - 18:11
      
      @poko: I've got two cards' info added. First one is an nab card that I only used only once for balance transfer (paying back now the min payments until the end of interest free period). I couldn't recognise the second card. It could be an old nab card that I cancelled in 2016.
      
      First card looks with perfect repayment history (green tick under every month). Second card has no info whatsoever (that's probably it's been cancelled).
  - djkelly69 on 18/02/2018 - 18:20
    
    Same here. Dropped from mid-600s (good) to low/mid-500s (below average) in the space of about two weeks. 1 new note about a credit relationship which I think was an old NAB credit card which was closed about 1.5 years ago.
    
    Repayments says 100% but no actual ticks or crosses, just shows 9 months from 2016 which I am guessing is the time I held the card.
    - djkelly69 on 19/02/2018 - 21:52
      
      To add: just checked my wife's, and she has just gone from mid-700s to low-600s. Neither of us have missed any payments, and paid about $50 in interest in the last 4 years.
      
      Looks like a fairly average system so far…
    - John Kimble on 20/02/2018 - 16:23
      
      @djkelly69: ha, if it went up you would have said the opposite?
    - djkelly69 on 20/02/2018 - 16:31
      
      @John Kimble: Perhaps not, but I would be equally confused.
      
      Seems hard to work out how, without doing anything, scores are taking massive hits.
- Easton on 28/02/2018 - 11:13
  
  My NAB repayments (100% on time) now appear on Credit Savvy and Credit Simple and it's affected my ratings thus:
  * Credit Simple: Was 626, now 711
  * Credit Savvy: Was 675, now 632
  
  One goes up, one goes down…
  
  No change yet at GetCreditScore – still 754.
  - Sharp on 28/02/2018 - 14:52
    
    +1
    
    I just cancelled my NAB credit card. See how long it'll take to see any impact in my credit score (if any).
    
    NAB guy had no idea that they've started reporting CC repayment info etc to credit agencies and doesn't know when I'll be able to see this cancellation in my credit report.
  - Baghern on 06/03/2018 - 12:51
    
    I dont trust credit savvy, I had mine go down where randomly twice , when I hadn't even done anything ie applied for a credit card.
    
    I as in the 800s, then 700s, now 600s.
    
    Always paid my current credit cards on time.
  - Easton on 06/03/2018 - 16:30
    
    I think the repayment history has popped into GetCreditScore's systems, as it's now gone up 52 points to 806.
    
    Not sure how CreditSavvy's systems work where having a 100% on-time repayment history results in a lower credit score…
    - Ti-au on 09/03/2018 - 23:06
      
      They also look at the amount of debt overall you have.
hamwhisperer on 25/02/2018 - 18:39

That's disgusting, ridiculous.

I've got I think 25 or 30k of cards and only ever paid 9 bucks interest accidentally about 15 years back.

Will they start refusing more cards or loans?
bohn on 26/02/2018 - 13:38

Wife dropped from 867 to 830, I went from 867 to 930.
Nothing changed in the last couple of months though.
- bohn on 01/03/2018 - 14:18
  
  I just got approved for another credit card, my rating went from 930 to 897.
- hamwhisperer on 06/03/2018 - 15:16
  
  Can you check your rating without impacting it? How?
  - starburstyellow on 06/03/2018 - 16:11
    
    Checking doesn't impact your score. getcreditscore.com.au is free, and uses Veda. I personally have a subscription with Equifax.
    - hamwhisperer on 06/03/2018 - 16:36
      
      +1
      
      Thanks dude:
      
      Lack of consumer adverse information Med
      Length of credit history Low
      Type of historical consumer credit applied for Low
      Limits delinquent Low
      
      905
      
      Shrug, I have like 6 credit cards, oldest one must be like 8 years old, maybe 20 to 40k worth but I never ever pay interest.
      Then again, no loans against my name ever and my savings don't count as a positive.
    - starburstyellow on 06/03/2018 - 16:47
      
      @hamwhisperer: wow 905. im below 600, but climbing :D Last card application was Jan-18.

Total Credit Card Limits to Affect Credit Rating from 1st July

Comments

Merged from Is it time to cut up Excess credit cards?

New Forum Topics