Kiwis get a sudden lift in credit ratings
Banks would have the confidence to make loans to people who might previously have looked too risky.
There’s been a national improvement in New Zealanders’ average credit score, but it’s not because we’ve suddenly got better with money.
It’s because two of the four big banks have started feeding ‘‘positive’’ information to the big credit ratings agencies.
The banks are Westpac and ASB, and the impact on some people’s credit scores, which go from zero to a maximum of 1000, has been dramatic.
One Westpac customer saw his credit score with credit rating agency Dun & Bradstreet (which lenders use to judge credit-worthiness) rise from a respectable 730 to over 900.
Credit bureaus compile credit reports and calculate credit scores for every adult in New Zealand using data passed to them by banks, insurers and power companies.
But last week Credit Simple, which lets people check their credit score for free online, emailed users to tell them Westpac and ASB had started passing ‘‘positive’’ information to credit bureaus.
‘‘We’ve got new data in our system from ASB and Westpac - including account payment history - so your score and ranking may have changed,’’ the email said.
Once, the agencies were allowed to collect only ‘‘negative’’ information such as missed loan payments and bankruptcies, but, following law changes in 2012, they are also allowed to collect ‘‘positive’’ information, such as bills and loan instalments paid on time.
It’s taken time for the banks to get around to passing positive information to the bureaus, with Kiwibank the first to get there.
But now it’s starting to flow through, providing a fairer picture of payment histories, many people are finding their scores rising, in some cases dramatically, which is causing a national uptick in creditworthiness.
‘‘When ASB started providing positive information, the average credit score nationally rose a few points,’’ said Credit Simple chief executive David Scognamiglio.
‘‘It happened again when Westpac started.’’
He predicted another rise when ANZ and BNZ followed the example of Westpac, ASB, and Kiwibank, which had been the first to adopt comprehensive credit reporting.
Until then, the credit scores of some ANZ and BNZ customers will remain lower than they should be.
Scognamiglio expected both BNZ and ANZ to start by the end of the year.
A spokesperson for BNZ said the bank was ‘‘excited about the opportunity that comprehensive credit reporting brings in recognising a more balanced assessment of our customers’ credit history, one which better reflects how you’ve been good with money.’’
‘‘We’re preparing the technical framework for this change and we’re targeting the latter part of 2017 for sharing more about it with our customers.’’
An ANZ spokesperson said the bank acknowledged the benefits of positive credit reporting, and changes were ‘‘in progress’’, but offered no date in terms of when the bank would start providing the positive information to the credit agencies.
Scognamiglio said comprehensive reporting was resulting in more ‘‘predictive’’ credit scores, which in turn would allow the big banks to start offering true riskbased pricing to customers.
‘‘At the top end they can think about aggressive pricing, starting to try to reward people with lower interest rates on loans.’’
Banks would have the confidence to make loans to people who, before comprehensive credit reporting, might have looked too risky, forcing them to go and seek a loan from a high-interest second, or third tier lender.