As a consumer and business owner, if you have a credit card or a loan, or have even just applied for either, you have a credit history. Recently, you’e likely heard the words “comprehensive credit reporting” thrown around between the media and financial institutions. However, you may not be aware that there are changes to credit reporting on the horizon, with new legislation outlining mandatory practices by which banks and other credit-giving institutions must abide. While these changes to open data have the potential to benefit all lenders, the CCR changes do not currently apply to SMEs.
In the past…
Previously, credit bureaus (such as Equifax and illion) only provided limited credit information to lenders, most of which related to negative lending history. Therefore, lenders were only privy to your overdue or missed payments, court judgements or bankruptcy. If a lender only knows about your negative credit behaviour, it’s harder for them to approve you for credit such as a loan. Think of it like hiring a new employee – imagine your potential employee’s resume only had the negative things they had done, or mistakes they had made; it’s unlikely you would hire anyone! Same goes for negative credit reporting.
The changes…
Comprehensive Credit Reporting (CCR) offers a welcome change to include positive credit reporting. The government is legislating for mandatory CCR in the upcoming months. This means credit bureaus will have to share at least 50% of your credit history data with lenders. So, while lenders will still know if you’ve got a history of defaulting on credit repayments, they’ll also know when your accounts were opened or closed, your credit limits, the type of credit accounts you have, and 24 months of your repayment history – including on-time repayments.
What can you, as a business owner, do to strengthen your credit history?
As mentioned previously, this increased access to data will not be available for SME lending under the legislative changes. Nonetheless, it is still important for business owners to have a strong business credit profile.
Here are our top tips to creating a strong credit history for your business:
1. Become familiar with your credit score
Knowing your credit score can help you gain insight into the overall financial health of your business. Your business credit score is a numeric indicator derived from your credit profile, and is provided by the credit bureaus. This number is one of the factors lenders use to assess the risk of lending to your business. Business credit scores range from 0-1200 – the higher the score, the better. OnDeck’s obligation-free online Know Your Score tool allows you to immediately check your business credit score. It’s free and it won’t have an impact on your current score. Try it here!
2. Ensure your business credit profile is accurate
Credit bureaus have relevant information relating to your credit history. These bureaus want the data they have on your business to be as accurate as possible. However, sometimes that might not be the case. As a result, bureaus offer ‘dispute processes‘. This process allows business owners to make corrections to any verifiable incorrect information on their credit profile.
3. Maintain a positive relationship with your suppliers
As CCR brings with it positive credit reporting, it’s even more important to maintain a positive relationship with your suppliers. For example, if you leverage 30- to 60- day repayment terms with your suppliers, be sure to stick to those agreed upon terms. An open flow of communication with suppliers will mean you’re both on the same page, leading to a stronger relationship, which can strengthen your credit history.
Ensuring you have a strong business credit profile, and understanding the effects of the impending changes to credit reporting, could help you become a better borrower.
This information is general in nature and does not amount to financial advice.
This information is based off Deloitte Open Banking CCR Report, Feb 2018. https://www2.deloitte.com/content/dam/Deloitte/au/Documents/financial-services/deloitte-au-fs-open-banking-comprehensive-credit-reporting-080218.pdf
