New credit report balances risk with fairness

In a first for New Zealand, banks and other lenders can now assess the creditworthiness of their customers using the comprehensive credit information made available under changes to the country’s credit laws.

According to credit bureau Dun & Bradstreet (D&B), which is offering comprehensive credit reports and risk scores to organisations such as banks, utilities and telecommunications companies, the additional information will lead to a more accurate assessment of applications, reduce business risks and lead to fairer and more responsible lending.

The score predicts the likelihood of customers experiencing difficulty making repayments in the next 12 months, while the report lists new details about an applicant’s credit history, such as their record of making bill payments on time and information about the type of credit accounts they hold.

Improved accuracy

Dun & Bradstreet New Zealand Managing Director Dennis Martin said that better information leads to better results.

“Access to comprehensive credit reporting data improves the accuracy with which credit providers can identify both good and bad customers, and has a clear and significant impact on their ability to lend appropriately.

In addition to an expected boost to credit activity, which is good news for the economy, consumers can expect greater access to finance, including those (such as young people) previously locked out of the formal credit system because of a limited credit history,” he said.

According to Mr Martin, with positive aspects of a customer’s credit history now visible to lenders, people with negative experience have a new capacity to demonstrate their ability to borrow, manage and repay credit.

Statutory amendment

An amendment to the Credit Reporting Privacy Code in April 2012 introduced a comprehensive credit reporting system to New Zealand, which was one of the few developed countries still operating in a ‘negative’ information environment.

Under the negative system, only adverse data such as customer defaults, court judgements and bankruptcies was available to credit providers when assessing customers.

Today, following two years of development with a number of major credit providers, D&B is incorporating ‘positive’ details about consumers’ credit history into the credit reports viewed by lenders.

These new details include a history of bill repayments and additional account information that provide a more balanced view of a customers’ ability to repay.

In the lead-up to the reform of New Zealand’s credit reporting system, D&B and the Policy & Economic Research Council (PERC), one of the world’s foremost experts on credit information and economic development, examined the impact of comprehensive credit reforms.

Some improvements

The study found that the additional data available to credit providers would (a) make lending fairer and significantly improve credit distribution and access (b) create growth in lending to the private sector (c) improve access to credit for small businesses and (d) help lenders to mitigate risk.

The study, which utilised 1.8 million de-identified credit records, also forecast that comprehensive reporting would more than double the ability to correctly assess low risk individuals, and improve by 32% the ability to identify individuals most likely to pay late or default.

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