The power of positive credit reporting: Part 1
In this two-part blog on the power of positive credit reporting, we highlight five ways mid-market lenders (MMLs) can benefit. In part two, we’ll share an interview with one of our partners helping take the pain out of onboarding for lenders with limited resources.
The power of positive credit reporting: Part one
Five ways mid-market lenders can benefit
When Comprehensive Credit Reporting (CCR) was introduced in New Zealand in 2012, it was designed to tap into the power of reporting on positive financial behaviour. By providing both positive and negative credit data, lenders would have a richer, more accurate picture on which to base lending decisions.
The concept of CCR is based on sharing information across multiple industry levels, to benefit all. The power lies in the size, number and diversity of those participating. And while the switch to a fully comprehensive system takes significant time and resources, it’s a critical part of successfully operating in the New Zealand market.
Under CCR, positive information is recorded on an individual’s credit history, alongside any negative information like payment defaults, bankruptcies or multiple credit applications. That information includes a 24 month payment history, account types, limits and status, and information on credit providers like utilities and banks. So, what if you’re a mid-market lender with limited resources? Where’s the power in positive insights and what are the benefits?
Here’s five reasons mid-market lenders should be onboard:
Reciprocity: Positive credit reporting is a reciprocal arrangement. This means that by feeding data in, you’ll have access to other positive credit data that will help with decision making. With most banks now onboard as well as some utilities, data is richer and more powerful. Positive credit reporting is providing a more rounded view of consumer behaviour.
More loans approved: Being able to see positive credit behaviour means the pool of eligible customers becomes larger than what it would have been under a negative only reporting system. For MMLs, it enables the growth of customer portfolios without carrying increased risk.
Fairer more accurate decisions: Prior to the introduction of positive credit reporting, any negative behaviour may have been flagged as a reason not to extend credit. Because a positive system allows a 360-degree overview, you’ll be better placed to judge whether any negatives are offset by positive behaviour. For example, an isolated default on a credit file may become much less relevant if you’re able to see that the customer has met all other credit obligations, on time, over a 24-month period.
Be a responsible lender: Contributing to positive credit reporting is also about being a responsible lender. Whilst responsible lending is designed to ensure consumers are not overloaded with debt they can’t repay, it’s also about a fair deal for all. Under a negative only system, some customers previously deemed high risk may now be deemed lower risk. All credit providers in New Zealand must meet their obligations under the Responsible Lending Code.
Contribute to a more financially literate nation: Positive credit reporting is helping to educate New Zealander’s on making smart financial choices. We’re already seeing young Kiwis learn about the benefits of positive reporting in the classroom via our partnership with Banqer. As more MMLs onboard, and as consumers become familiar with the rewards of positive behaviour, you’ll be contributing to a more financially savvy nation. Consumers will become more adept at improving and/or rebuilding their credit profile and better understand the impact this has on their ability to borrow at more competitive rates.
Takeaway
Disruption and consumer demand continue to dictate the trajectory and success of businesses operating in the financial services industry and beyond. How long until financially savvy consumers are asking whether you’re inputting to positive credit reporting? Can you see the full picture to provide them with the best deal?
Being part of a reciprocal positive reporting system shows that your organisation has a social conscience. Fair and responsible decisions will become increasingly important for consumers as they move through the various stages of the credit life cycle.
Check out part two of the blog to find out how to onboard to positive, with minimal pain.