What is credit?

Most people at one time in their lives will use credit. Credit can help you to get the things you want without having to pay the full amount up front. Put simply, credit is where you obtain goods or services and get to enjoy the benefit immediately and pay for them in the future.

Items that might be bought on credit include a house, holiday or new car or household goods. Credit also includes ‘buy now pay later’ retail finance and credit contracts like post-paid phone and electricity where you use the service and pay a bill each month.   

Credit is defined in the Privacy Act as a contract, arrangement or understanding under which:

a) Payment of a debt owed by one person to another person is deferred; or
b) One person incurs a debt to another person and defers the payment of the debt.

How does credit reporting work?

When you apply for credit with a bank or financial institution, or sign up to a contract that permits you to delay payment for services, for example a phone or unities contract, that organisation needs to be confident that you can repay the money. Past credit behaviour has been shown to be a strong predictor of future behaviour which is why your credit history is important and credit reporting exists.

A credit provider can use a credit report as part of the information they review to help make a decision on whether to extend credit to you. They may also look at the information you include on your application form as well as any other information they may have on you as a customer, and include all this information when making a decision based on their own lending criteria.

Credit reporting information supports responsible lending in Australia, helping ensure credit is only provided to those who are likely to repay it. The Privacy Act sets out the rules about what can be in your credit report and how it can be accessed and used.

As a credit reporting body, Equifax is one of the leading custodians of Australians' credit information.

Below are two examples of how credit reporting works.

New credit application

Let's take the example of Sue...

Sue applies for a personal loan with ABC Bank by completing a form online. The form has terms and conditions advising Sue that a credit check will be conducted and that her information can be passed on to a credit reporting body.

When assessing Sue's application for credit, ABC Bank takes into account information on the form, any other information they may have (like if she is an existing customer), and also requests a credit check from Equifax (or another credit reporting body in Australia). As part of this check, some information from the application is passed on to Equifax, such as Sue's name, address, employment details and the credit enquiry information. In response to this request for a check, Equifax will supply back to ABC a credit check, that  could include a full credit report on Sue and a credit score for Sue calculated on the Equifax credit score model.

ABC Bank then makes a decision based on all the information they have about Sue's application for credit. Each credit provider will make their own credit assessment decision. Whilst legislation determines the information a credit reporting body can pass on to credit providers, credit providers decide how to use it and what analysis to apply.  A credit provider can use a credit report as part of the information they review to help make a decision on whether to extend credit to you. They may also look at the information you include on your application form as well as any other information they may have on you as a customer, and include all this information when making a decision based on their own lending criteria. Therefore information from one lender may mean a loan application is rejected, whereas another will accept it. 

Default listing

Sue also has a mobile phone contract with the telco ABC Phone Company, and she has missed a number of payments. Despite ABC Phone Company contacting her, she has not paid her outstanding bills.

The phone company decides to list a default for non-payment (this is outlined in the terms and conditions of her account), which is legal because the amount is in excess of $150. This payment default information is provided to Equifax and other credit reporting bodies.

Next time Sue applies for credit, any credit provider who conducts a credit check with Equifax or another credit reporting body, will be able to see this default information on her credit report.

Learn more:

What is a credit reporting body (credit bureau) and what do they do?

A credit reporting body, often referred to as a credit bureau, is an organisation that collects and sells credit information. In Australia credit reporting bodies (CRBs) are governed by the Privacy Act which sets out the rules about what information can be collected about you and included in your credit report, as well as how it can be accessed and used. Credit reporting information supports responsible lending in Australia, helping ensure credit is only provided to those who are likely to repay it. There are only four CRB’s in Australia, Equifax, Illion, Experian and Tasmania Collection Service.

CRBs are obligated to provide you with a copy of the information they have on you, including your credit report for free.

Each CRB, like Equifax, maintains their own set of consumer credit information based on data from credit providers, like banks, financial institutions, telecommunications and utilities companies and publicly available data.

Learn more: CreditSmart helps explain credit reporting.

Trending Questions

If you have been denied credit it is best not to apply for credit again until you find out why. There are a number of factors that may result in an application for credit being refused, but this depends on the lending criteria of the credit provider. Nevertheless, reasons may include :

  • Level of income and savings to meet the loan repayments;
  • Number of other loans and other financial commitments you have;
  • How secure your employment is;
  • Details on your credit report which can include information such as previous bankruptcy, defaults, serious credit infringements, high number of credit applications and poor repayment history.

If you have been declined credit and the information on your credit report was a factor, the lender, phone or utility company will give you details of the credit reporting body they used.

If it was Equifax, the first step in understanding why your credit report has contributed to you being declined credit, is to obtain a free copy of your Equifax credit report. If you have been declined credit you are entitled obtain a free credit report if you apply within 90 days of being declined and provide evidence that a credit provider has declined your application for credit.

By getting a copy of your Equifax credit report you can better understand what information may have contributed to your application refusal. It is important to check your credit report regularly to ensure it is accurate.

You can find out your Equifax Score here. By signing up to an annual subscription you can access your Equifax credit report and score and receive an update every year. For more frequent updates and additional features such as credit alerts, a score tracker and identity monitoring we have a range of different subscription packages.

If you’re looking for your free Equifax credit report you can get it here.

Comprehensive credit reporting (CCR) means there is more ‘positive’ information that can be included on consumers’ credit reports. This provides a more detailed picture of an individual’s credit history and credit worthiness. CCR refers to the type of consumer credit information that can be collected by credit reporting bodies (CRBs) and can be used by credit providers when making a lending decision.

The positive CCR data that can be included on credit reports includes:

  • account information such as the date an account was opened and closed;
  • credit limit;
  • type of credit account; and
  • 24 months repayment history. Repayment history information can only be provided by and shared with licenced credit providers - this doesn’t include telecommunications and utility companies.

Previously Australia had a negative reporting system. This meant consumer credit reports could only contain information such as credit enquiries (typically applications for credit) and information from credit providers such as payment defaults and serious credit infringements. Most advanced economies in the world operate under a comprehensive credit reporting system.

CCR was introduced on 12 March 2014 as part of legislative reform. The Privacy Act 1988, which is the legislation governing consumer credit reporting in Australia, was amended to introduce comprehensive credit reporting.

Whilst CCR was introduced some time ago there has been limited CCR information supplied to CRBs. It is likely that during 2018, the amount of CCR data supplied by lenders to CRBs will increase dramatically as mandatory CCR reporting for the big four banks is due to be introduced into law by the Australian Government.