Did you know that 10%, or 1.8 million, of Australian adults have misrepresented their personal finances when applying for credit?
Neither did I.
But the numbers, produced in a report for Veda Advantage by Galaxy Research, tell a surprising story:
- 1,057,000 Australians understated their total expenses
- 328,000 overstated their income
- 427,000 understated the amount of money currently owed on credit cards
Admitting the problem is the first step
Angus Luffman, head of Consumer Risk at Veda Advantage, is concerned that this misrepresentation is amid continued financial weakness for many Australians.
In response to the report, Luffman said, “Combined with the rise in applicants falsifying their financial status, these figures reveal a concerning trend and provide a call to action for Government to expedite the adoption of a comprehensive or positive reporting system.”
He continues, “Australia’s credit reporting system is lagging behind other economically developed countries and Australia needs to step-up in its response or we risk seeing more Australians succumb to debt pressure.”
Why aren’t the credit checks working right now?
Negative reporting is all Australian credit checks currently do. That means that lenders only see two things:
- Whether or not a person defaulted in the past five years
- How many credit enquiries have been made
Is the consumer financially over-committed? Can the consumer meet current repayments? Well don’t ask the lenders, because they won’t have the answer. Mr. Luffman agrees that this doesn’t quite seem fair.
A positive system will bring positive results
New National Consumer Credit Protection (NCCP) laws require all credit providers to take significant steps to make sure they aren’t providing credit to a consumer when they shouldn’t be. That’s great, except the NCCP doesn’t seem to be helping out with that.
Mr. Luffman comments, “If lenders are expected to uphold NCCP requirements, then it only makes sense for the Government to support them in this process. Lenders therefore require access to additional information on credit reports so they can make a more accurate assessment to determine whether providing more credit could place a consumer in a position of financial hardship.”
He goes on to comment that Australian consumers deserve a thorough credit check that takes into consideration their entire credit history and not just a past default that could have been one instance of financial weakness.
At the end of the day, consumers aren’t the only winners if the credit check system gets its much-needed makeover – lenders will have a big weight lifted off their shoulders as well.
Image by Ambro