Today (1 April 2012) marks the commencement of new laws in New Zealand affecting what can be reported about an individual's credit history and repayments.
According to illion, banks, telecommunications companies, utilities and other credit providers will now be able to record whether people are paying their bills and other financial commitments on time.
General Manager of illion in New Zealand, John Scott, said that it was now broadly recognised that 'comprehensive' credit reporting has the potential to reduce credit costs, improve lending and lower rates of default.
"Prior to today, New Zealand was one of the few remaining countries in the world to conduct lending in a 'negative' data environment where credit providers only had access to adverse payment information on a consumer like defaults or bankruptcies," Mr Scott said.
"The new 'comprehensive' credit reporting environment now means that information on the timeliness of payments, including whether payments were on time or late, will now be available."
A recent quantitative study – the first of its kind for New Zealand – conducted by illion with the Policy & Economic Research Council (PERC), one of the world's foremost experts on credit information and economic development, looked at the impact of 'comprehensive' credit reforms in New Zealand.
"The report found that the reforms have the potential to significantly improve credit distribution and access in New Zealand."
"The use of 'comprehensive', rather than just 'negative', credit information provides greater visibility of under-served consumers and small businesses who would otherwise find it difficult to access credit."
In particular, the study highlights a number of specific benefits associated with the changes, including:
- the ability to correctly assess low risk individuals is more than doubled in a 'comprehensive' credit reporting environment;
- under a 'comprehensive' credit reporting environment there is a 32 per cent improvement in the ability to identify an individual that is most likely to pay late or default;
- the use of non-bank information, like payments on telecommunication and utility bills, provides significant improvement in access to credit for previously under-served sectors of the community;
- young people are the primary beneficiaries because of their limited banking history and the fact that non-bank credit, such as mobile phone accounts, are the first credit experience of most young people.
"By documenting good credit performance, the introduction of 'comprehensive' reporting removes the barriers to mainstream credit for those individuals who may have previously had an adverse credit event. This is because the existing New Zealand system documents only bad, or negative, credit performance," Mr Scott said.
"In particular, small business is a big winner from the new reforms because of the additional information that becomes available on business owners – this tends to turn small business owners from credit 'invisible' to credit worthy."
These significant reforms mean that it is now increasingly important for individuals to monitor and track their repayment patterns and credit history. Consumers can obtain a copy of their credit report here.