Lenders are now reporting your “on time” payment history – and it matters, a lot.
Lets delve into the evolution of credit reporting in Australia, specifically focusing on RHI reporting.
Before 2020, credit reports primarily featured negative information, such as defaults, judgements and late payments. This was deemed a limited perspective by the Australian Banking Association who set about to create a better environment for consumers. The aim was to have good payers rewarded for good behaviour via loan discounts. Interestingly, the opposite has happened.
In 2020 RHI (Repayment History Information) reporting was introduced to provide a more comprehensive view of an individual's creditworthiness. ( The legislation was made in 2014 but we didn't see it in play until much later)
Understanding RHI Reporting:
RHI reporting brought about a substantial change by offering a detailed account of an individual's repayment history over the past two years. This monthly record serves as a valuable indicator for lenders, showcasing both positive and negative repayment patterns.
Each month, the report reflects whether payments to credit providers were made on time or if there were instances of missed payments – and if so, how late they were. Timely payments now contribute positively to one's creditworthiness, while missed payments may have a more immediate impact on credit scores.
Implications for Individuals:
Enhanced Transparency:
RHI reporting elevates the transparency of credit profiles, providing lenders with a more nuanced understanding of an individual's financial behavior.
Encouraging Financial Responsibility:
The emphasis on repayment history encourages individuals to adopt a proactive approach to financial management, with timely payments serving as positive markers.
Credit Score Dynamics:
Given the focus on repayment history, missed payments can now exert a more immediate influence on credit scores. This underscores the importance of maintaining financial diligence. This has had a huge impact and we have seen lower credit scores from individuals with poor repayment history than some with actual defaults
Access to Improved Opportunities:
A positive repayment history was intended to be a catalyst for accessing better credit opportunities and favorable interest rates, so far we haven’t seen this happen. We have only seen payers who mostly pay their loans on time denied credit for one or two blips which wouldn’t have occurred in the old regime.
Repayment History Information (RHI) reporting codes are an integral aspect of Australia's credit reporting system, providing detailed information about an individual's repayment behavior. These codes serve as markers on credit reports, reflecting the timeliness or lateness of payments to credit providers. Understanding these codes is crucial for individuals to comprehend their credit reports and for lenders to assess creditworthiness accurately. Here's a breakdown of the common RHI reporting codes:
0 - Not Applicable:
This code indicates that there is no applicable repayment information for the specific account during the reporting period. It may be relevant for accounts where no repayment is expected in a particular month.
1 - Always Paid on Time:
A code of "1" signifies that the individual has consistently made payments on time for the specified account during the reporting period. It is a positive indicator of responsible financial behavior.
2 - Paid Within 1-29 Days of Due Date:
This code indicates that the repayment for the specified account was made within 1 to 29 days of the due date. While not considered late, it suggests a slight delay in payment.
3 - Paid Within 30-59 Days of Due Date:
A code of "3" indicates that the repayment for the specified account was made within 30 to 59 days of the due date. It signifies a moderate delay in payment.
4 - Paid Within 60-89 Days of Due Date:
This code reflects that the repayment for the specified account was made within 60 to 89 days of the due date, indicating a relatively extended delay in payment.
5 - Paid Within 90+ Days of Due Date:
A code of "5" suggests that the repayment for the specified account was made more than 90 days after the due date. This is considered a significant delay and may have a more pronounced impact on credit scores.
6 - Payment Was Not Made:
The code "6" indicates that no payment was made for the specified account during the reporting period. It is a negative indicator and may have a substantial impact on creditworthiness.
The importance of on time payment history cannot be understated as it is very visible and remains so for a full 2 years. This WILL block you from borrowing or at least cause you to have to look at alternate lenders – but I cannot emphasis the importance lenders put on this quite enough, so keep your history clean.
Thanks to our friends @creditfixsolutions for this comprehensive visual
