Banking: Effie Zahos

A credit score is just one factor for the bank to consider

Just what we need ... another agency to keep score on us. Credit Simple, part of Dun & Bradstreet, joins GetCreditScore, which uses Veda data and is backed by peer-to peer lender SocietyOne, and Credit Savvy, part of Experian, to become the third agency in Australia to provide a personalised credit score.

While I’m all for competition, the idea that a consumer can now have three different credit scores seems a little ridiculous. Whose score should we believe? I’m guessing you said “the highest one”, of course! Which agency do banks use to assess your credit applications, and can you get a better deal by having a great score?

Credit Simple claims Aussies are potentially missing out on $8.3 billion in savings each year by not using their credit score to negotiate better deals.

I understand why Dun & Bradstreet decided to add credit scoring to its business. Research by IBISWorld shows that the credit agency industry has grown at a solid pace over the past five years. Our insatiable appetite for debt and strong demand from banks and other organisations for credit reporting services pushed industry revenue to around $605 million last year. The high cost of entry leaves existing players in a lucrative position and one way to cash in is to offer more services, such as credit scoring.

Katherine Temple, senior policy officer at the Consumer Action Law Centre, agrees, adding that “credit scores are merely a marketing ploy created by credit agencies”. She says credit regulations are stronger in Australia than in the US, which means our banks don’t rely on them as much as they may overseas. But consumers would benefit greatly if there was a onestop shop for accessing all credit reports.

Unfortunately (or fortunately), our privacy legislation does allow our credit information to be held and sold, which is why we don’t have just one body governing our personal details. The Office of the Australian Information Commissioner is charged with ensuring credit reporting companies comply with the law but, as Temple points out, there are still instances of incorrect listing and misuse of personal information.

Business opportunities aside, the fact remains that three agencies can mean three scores. So it’s best to know who’s who and what a credit score can actually do.

When it comes to calculating scores, the better the data base, the better the result. Veda wins in terms of market share. IBISWorld calculates its share when looking at the entire rating market to be 40% (retail alone is 85%), Dun & Bradstreet’s at 16% and Experian’s at around 5%. It comes as no surprise, then, that Veda’s general manager, Izzy Silva, says that a score is only as good as the data it draws on. “A score based on minimal data can lead to the wrong credit decision being made,” he says.

While different agencies have different scores based on their own information and calculations, Temple reminds us that it’s not the be-all and end-all. “In reality, credit providers cannot rely solely on someone’s credit score when deciding whether to give them credit. To comply with their legal obligations to lend responsibly, they need to assess a whole range of extra information.”

last looked at credit scores in October 2014 and, after recent discussion with several banks, the wash-up is still much the same. Scores can be a component of the assessment but not the main part. The reliance on credit scores for existing customers is typically less than for new one. “Credit scores are a method of quantifying the qualitative information contained in credit reports, and are particularly useful in automated credit assessment models,” says Terry Millett, CEO of Newcastle Permanent.

As for discounts, if you’ve been a good customer you can negotiate just about anything – with or without a credit score. For peer-to-peer lenders it’s a little different. A good credit score could mean a good rate. Either way, there’s no harm in checking your score. Both your credit history and score can be accessed free.

Finance expert and author of The Great

$20 Adventure, Money’s editor Effie Zahos appears regularly on TV and radio. She started her career in banking.