Disclaimer: This guide was written by Paul Abbey, Chief Risk Officer of MoneyPlace. Money Place AFSL Ltd holds Australian Credit Licence number 466327. No commercial consideration has been given between Point Hacks and MoneyPlace for the inclusion of this content on the Point Hacks website. MoneyPlace is changing the way Australians borrow by creating an online personal loans marketplace. It’s like what Airbnb is to hotels, but with loans. Investors make money available in their marketplace, and they find credit-worthy borrowers to lend to.
In our first guide we ran through how the credit assessment process works in Australia and that a key piece of the puzzle is information held by the Credit Reporting Bodies (CRB). The CRBs are centralised databases holding credit reporting information on consumers and businesses across Australia, outlining their applications for credit, any defaults & public record information (e.g. bankruptcy/judgements). A Credit Provider will usually report all credit applications to one or more CRBs – this will include new credit cards, personal loans, home loans, rent-to-buy, short term loans (payday) as well as limit increases or refinancing. The Credit Provider will let the CRB know the:
- Date of credit application
- Who the credit provider is
- Amount of credit applied for
- Type of credit applied for
Crucially the Credit Provider does not have to let the CRB know the outcome of the application.The application could have been approved or rejected by the Credit Provider or the customer could have withdrawn their application, but in most cases only the credit enquiry will be shown on their credit file. Some Credit Providers are beginning to share more details (including what accounts customer has – more on this in a future topic) with CRBs after updates to the Privacy Act in March 2014, but industry uptake has been slow so far.
What does this mean for a consumer’s bureau files and credit scores?
As the CRBs & Credit Providers can only see credit enquires & default information in most cases, this places greater emphasis on these pieces of information. This means that the type of credit applied for, amounts applied for and frequency of credit enquiries can have a significant influence on how a new application for credit is assessed. Let’s see how this could play out, with two neighbours with similar circumstances but a very different approach to points.Customer A:
| Date | Product | Amount |
|---|---|---|
| 1/03/16 | Credit Card | $10,000 |
| 29/02/16 | Credit Card | $15,000 |
| 20/02/16 | Credit Card | $7,000 |
| 15/02/16 | Credit Card | $20,000 |
- struggling financially and needs a lot of additional credit
- Applying for credit cards and being declined by Credit Providers, so trying multiple providers in a short time frame
- Trying to defraud credit providers
Customer B:
| Date | Product | Amount |
|---|---|---|
| 7/09/15 | Credit Card | $8,000 |
| 1/02/15 | Home Loan | $410,000 |
| 7/06/13 | Credit Card | $15,000 |
Before applying for a credit card for some bonus points, it is worth thinking through the potential impact to their credit file too.Shopping around for credit can leave lots of credit enquires on someone’s credit file – some loan providers like MoneyPlace allow people to understand what interest rate they are eligible for, without leaving a credit enquiry on their file. This puts consumers back in control to make an informed decision and get a better deal.
Coming next: The upcoming changes in the credit reporting system
How Credit Works Series
- Part 1: The credit card assessment process
- Part 2: How loans and credit card applications could impact credit scores
- Part 3: The upcoming changes in the credit reporting system
- Part 4: Managing your credit – our key tips
Community Comments
Here is information from the MoneyPlace website. If you proceed with the loan application, it may still be rejected and you may still damage your credit rating:
Does applying for a loan affect my credit file? What kinds of activity is on my credit file?
When you apply for a loan from us, and by submitting the full application form, we may obtain a copy of your credit file. By doing so we also advise the credit reporting body that you have made a loan request with us. This information gets recorded on your file.
If you subsequently apply for another loan, a credit provider will be able to see that you applied for a loan with us. This is different to when you only receive a rate estimate with us, because this information is not disclosed to other lenders.
I’m glad you published this article, so people don’t fall into the same trap I did! I applied for four CC’s in a short space of time for points. All were approved and I got the points I need, with three of the four cards actually closed now, but when they all hit my credit report it absolutely TANKED! I was in Excellent, now I’m listed as Below Average and they’re red lights everywhere… So I second the comment – consider the impact before applying to get points!