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Research commissioned by CreditSmart, a consumer education platform owned and managed by Arca, found 41 per cent of Millennials, 37 per cent of Gen Z and 34 per cent of households earning less than $100,000 had avoided applying for a financial product because of concerns about their credit score.
In response, a coalition of credit providers and consumer advocates led by Arca is calling on the federal government to overhaul credit-reporting rules, arguing the current system could discourage consumers from comparing products and seeking better deals.
Arca CEO Elsa Markula said the rules were increasingly difficult to defend.
“We tell Australians to shop around, compare their options and look for a better deal, but our credit reporting system can make people afraid to do exactly that,” she said.
“When household budgets are already stretched, we should be removing barriers to competition, not creating them.”
Calls for ‘soft inquiries’
One of the key reforms proposed by Arca is the introduction of “soft inquiries”, which would allow consumers to compare credit products without affecting their credit score.
The industry association is also calling for more detailed information to be included in Australian credit reports, including the amounts borrowers owe and have repaid, to give lenders a more complete picture of consumers’ financial positions.
ClearScore CEO Justin Basini said Australia had room to catch up with overseas credit markets, including the UK, where soft-search eligibility checks were standard.
“Australia still has significant room to modernise. Soft-search eligibility checks are standard in the UK, making it far easier for people to explore and compare suitable products without fear of harming their credit profile,” he said.
“The UK market also benefits from richer data and a more rounded picture of consumer behaviour. That gap means Australian lenders and consumers are both missing out on better-informed, more personalised credit decisions.”
Broader reforms proposed
Arca’s proposed reform package also includes stronger identity-fraud protections, raising the threshold for listing defaults from $150 to at least $300, improving correction processes, closing gaps in comprehensive credit reporting and tightening regulation of credit repair firms.
The association said the changes could improve productivity, reduce red tape and give Australians safer, more efficient access to credit.
It is urging the federal government to progress the package in full, including targeted amendments to the Privacy Act and National Consumer Credit Protection Act.
“When consumer advocates and the credit industry are both asking for the same changes, government should treat that as a mandate to act,” Markula said.
Comprehensive credit reporting was introduced in 2014 following major legislative reform, with Arca helping develop the rules and data standards underpinning the system.
However, Arca argued the framework had not kept pace with changes in the credit market.
“A fair credit system should reflect someone’s real financial position, not exaggerate the significance of a minor debt, penalise them for shopping around, or allow outdated information to shape their financial future,” Markula said.
[Related: Suncorp Bank transition could bring ‘significant’ repayment increases, brokers warned]
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