Credit Card Churning May Get More Difficult.

[Renato1]

Here is an email I got from Westpac today.
I can see difficulty arising with churning from the bits I've put in italics, unless one cancels nearly all cards and keeps a tiny credit limit on one's good point earning card (like Amex Platinum Edge) .
Regards,
Renato

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"We want to update you on a proposed legislative change that may affect you.
The Australian Government has proposed a change that mandates Comprehensive Credit Reporting (CCR) from 1 July 2018.
Also known as positive credit reporting, the proposed CCR legislation mandates the reporting of positive, as well as negative, credit history - from Australia's largest financial institutions.

What this means for you
Today your credit history includes credit enquiries (applications for consumer credit and credit contracts) and negative information (significantly overdue accounts including defaults and serious credit infringements, and public record information).

The proposed change means that additional information, including account open dates, credit limits and up to 24 months of repayment history, will be supplied to our three credit reporting bodies for all open consumer credit accounts.


Protecting your credit history
It's important to know that from April 2018, we’ll record your comprehensive credit information to comply with the changed legislation and report this to the credit reporting bodies from 1 July 2018.

This means it's now as important as ever to pay your bills on time, and if you do, this will appear favourably on your credit report.

Setting up automatic payments, such as Card Autopay, can take the hassle out of remembering to pay your bills on time and help you to keep your payments on track.

You can find out more about CCR at the Australian Retail Credit Association (ARCA) by visiting the CreditSmart website.
Regards
The Westpac team

"

 

[kpc]

I agree. However, some of my older credit cards are not on file so.......anyway, I'm about to get a big home loan so my churning days are ending anyway!.

 

[burmans]

I think you may well need to change your behaviour but think the evidence actually points the other way. Both the US and the UK have had similar positive reporting schemes for some time and there is no evidence that this has restricted card churners, in fact the US experience would suggest quite the opposite.

The current negative reporting scheme does not have much information to go on, consequentially factors like number of applications receive quite a high negative weight in credit assessment. There is an inherent assessment (backed up by considerable empirical evidence) that multiple applications in a short time is a leading indicator of financial stress. However the banks don't know if this is really true, they just rule people out based on the numbers alone as a higher likelihood "bad" applicant.

In positive reporting lenders have more information about whether you are actually paying that loan back on time. If you are this will be a positive for your credit assessment not a negative.

The one area it may be a negative is in your lending capacity, i.e. they will know how many cards you have and the aggregate credit limit on these. Simple answer to this, a) close some cards, b) reduce/restrict the credit limits.

 

[mviy]

I'm about to get a big home loan so my churning days are ending anyway!.

You can still get credit cards if you have a home loan. In fact after a period of positive repayment history your home loan should actually increase your credit score.

 

[GSP]

Yes I think Burmans response is spot on. It can only be positive if we are doing the right thing and paying it all off. A downside is if the CC provider has access to your complete credit availability and # of cards, but then again they ask you that question each application (some more general than others) so the problem only depends on how much that information entered differs from reality.

 

[Lynda2475]

reduce/restrict the credit limits

The problem is the cards that have a decent points earn rate (after sign-up bonus) have very high minimum credit limits, you often cant reduce them below $12-15k.

Im saving my free credit report until end of this year, once the new reporting has been in place for at least 6 months, so I can see what is on my report. I got two new card in the last 3 months (an Amex Qantas Ultimate and ANZ FF Black) but have had a mortgage and my MasterCard for 15+ years so will be interesting to see if MasterCard shows up.

Im planning to keep my Amex (as the travel credit cancels out the annual fee), but cancel the ANZ before the Annual Fee is due (as was waived for this year) and replace with a different Visa (likley NAB) that has a sign-on bonus.

Im expecting that fact that balance was always paid in full, and card cancelled before applying for new one with same limit wont go against me.

 

[mviy]

Indeed. I already apply for the minimum credit card limit for the cards that I apply for.

 

[Renato1]

The one area it may be a negative is in your lending capacity, i.e. they will know how many cards you have and the aggregate credit limit on these. Simple answer to this, a) close some cards, b) reduce/restrict the credit limits.

I think this aspect is problematic.

I've always felt comfortable having a card which could pay for most anything I could think of - say a round the world cruise.
Can't do that with the $10,000 to $16,000 limits I've typically been offered on new cards.

Do I want points or do I want that feeling of security?
Regards,
Renato

 

[blueythecat]

I think this aspect is problematic.

I've always felt comfortable having a card which could pay for most anything I could think of - say a round the world cruise.
Can't do that with the $10,000 to $16,000 limits I've typically been offered on new cards.

Do I want points or do I want that feeling of security?
Regards,
Renato

Always the points

 

[theblank]

Here is an email I got from Westpac today.
I can see difficulty arising with churning from the bits I've put in italics, unless one cancels nearly all cards and keeps a tiny credit limit on one's good point earning card (like Amex Platinum Edge) .
"

I disagree, it makes it easier to churn.

because a lender could see that you have applied for 10 credit cards in the last 3 years, but only have 1 current.

 

[mviy]

because a lender could see that you have applied for 10 credit cards in the last 3 years, but only have 1 current.

And also that it's not 10 unsuccessful applications, but rather cards you've been approved for and have been paying the bills for on time and have chosen to cancel (well cancel, except for the 1 current one).

 

[burmans]

The problem is the cards that have a decent points earn rate (after sign-up bonus) have very high minimum credit limits, you often cant reduce them below $12-15k.

I think we all need to bear in mind that much of credit assessment is based on a comparison of behaviour against average population behaviour. Credit analysts has access to a large pool of data and the factors, relative to the average, which are more likely to lead to credit risk.

The reason I mention is that some here seem to be concerned that the lenders can now see their data and this may count against them, this seems to ignore the fact that they can also see everyone's data and frankly lenders already know that when this happens we/they will become aware that people have more debt than they have previously declared. I can't speak for the lenders but I don't think lenders will be overly concerned where limits have been understated by relatively small amount or you have total credit limits that are low relative to the general population. I would not be surprised to see this average be considerably higher than some expect (bearing in mind what is being reported is limit not balance). So I doubt 2 $15K cards (and quite possibly even higher) will be a problem but if you've got half a dozen cards with $30K plus limits it may well be, particularly if you have "accidentally" forgotten to declare those on your application.

 

[mviy]

Well if people already have cards and are responsibly paying them off on time but they forgot to mention one of their cards on their application a while back I think lenders might not mind too much. For new applications though they probably would care.

It's a good idea if you're churning a lot to get your credit report periodically (either the free reports or on a paid subscription to get them more regularly) as it'll help remind you as to what cards you have. It'll also allow you to check to make sure that lenders have reported that your closed accounts have been closed.

 

[Lynda2475]

I'm not concerned re credit card applications, because as you say it shows which ones are current and that you have paid them off on time. The impact is more of a a problem when you go for a mortgage, as the banks/lenders look at your combined limits (and assume you pretty much use it all) rather than your typical spend or balance.

So if I have Amex ($15k), Visa ($15k) and Mastercard ($15k) to maximise my points earning opportunities, and then apply for a loan the bank assumes im servicing $45k of debt each month, when in fact typical spend may only be 20% of that across all cards.

Its common for people to cancel all but 1 card (and reduce limit on that card) before applying for a home/investment loan to improve the amount they will be approved to borrow, then get new cards after a bit of a pause. However this hampers point earning potential - which of course is important to the people here.

Once the reporting has been in place for at least 12 months, then I hope banks will change the way they consider credit card limits in their assessment process - more focus on how much credit you actually use and whether you pay it back, not how much you can access.

 

[mviy]

The impact is more of a a problem when you go for a mortgage, as the banks/lenders look at your combined limits (and assume you pretty much use it all) rather than your typical spend or balance.

Yes, the amount you can borrow is reduced by a multiple of your combined credit card limits. There are calculators online that can give you an indication and mortgage brokers can help with this too. If your income greatly exceeds what would be necessary to service the mortgage then you might still be able to have quite a significant amount of combined credit card limit still.

So if I have Amex ($15k), Visa ($15k) and Mastercard ($15k) to maximise my points earning opportunities, and then apply for a loan the bank assumes im servicing $45k of debt each month, when in fact typical spend may only be 20% of that across all cards.

Indeed.

Its common for people to cancel all but 1 card (and reduce limit on that card) before applying for a home/investment loan to improve the amount they will be approved to borrow, then get new cards after a bit of a pause. However this hampers point earning potential - which of course is important to the people here.

Points earning potential is important, but so is getting a mortgage. Most people probably don't get a new mortgage that often unless they move a lot or they keep on picking banks that gouge them on interest rates after an introductory period.

Once the reporting has been in place for at least 12 months, then I hope banks will change the way they consider credit card limits in their assessment process - more focus on how much credit you actually use and whether you pay it back, not how much you can access.

Does the CCR actually provide that level of info though i.e. how much you've credit you've actually used not just whether you've paid it on time?

 

[theblank]

I'm not concerned re credit card applications, because as you say it shows which ones are current and that you have paid them off on time. The impact is more of a a problem when you go for a mortgage, as the banks/lenders look at your combined limits (and assume you pretty much use it all) rather than your typical spend or balance.

Correct, thats why now, lenders want to see 6 months of statements on the account your salary gets paid into to cross reference the transactions against the liabilities you have shown. Undisclosed credit is exacty what the are looking for here, and they will still be asking for that.

Its common for people to cancel all but 1 card (and reduce limit on that card) before applying for a home/investment loan to improve the amount they will be approved to borrow, then get new cards after a bit of a pause.

You dont have to do that, you can just tell the bank that you will close the cards or reduce the limit after the loan is approved. That will be acceptable part of the process. They will issue an approval letter saying 'subject to reduction of credit card limits" and in many cases they will just ask the customer to provide a written statement saying they have done so.

Once the reporting has been in place for at least 12 months, then I hope banks will change the way they consider credit card limits in their assessment process - more focus on how much credit you actually use and whether you pay it back, not how much you can access.

It doesnt matter whether Credit Reporting can show that or not, Lenders have always had a policy where they can ignore credit card limits in certain circumtances. My associates (brokers) are telling me that the new APRA regulations are making that 'impossible' to do, but then I convinced Suncorp to ignore my ~100k of credit card limits anyway about 6 months ago.

Now of course, you have to realise different borrowers will be treated differntly. If a first home buyer has ony 5% deposit, the lender will be much firmer with their requirements, then for a pair of baby boomer dinks with a 40% LVR, and no debts apart from the home loan.

 

[Lynda2475]

Now of course, you have to realise different borrowers will be treated differntly. If a first home buyer has ony 5% deposit, the lender will be much firmer with their requirements, then for a pair of baby boomer dinks with a 40% LVR, and no debts apart from the home loan.

Yes thankfully I am not a first home buyer, so if/when i upgrade and get a new mortgage I would hopefully be borrowing only 50% or less of the property value. My first mortgage I had 20% deposit, as a single purchaser I felt borrowing more than 80% on an owner occupier property was not prudent.

I used to work for one of the major banks and had been a customer of theirs for over a decade before that, when i inquired on my borrowing power to upgrade, i was surprised how high % of the credit card limit they assumed you used each month, despite having 15 years of history at their finger tips to prove differently.

The points game is easiest to play when your not looking for a loan.

 

[burmans]

Its common for people to cancel all but 1 card (and reduce limit on that card) before applying for a home/investment loan to improve the amount they will be approved to borrow, then get new cards after a bit of a pause. However this hampers point earning potential - which of course is important to the people here.

Once the reporting has been in place for at least 12 months, then I hope banks will change the way they consider credit card limits in their assessment process - more focus on how much credit you actually use and whether you pay it back, not how much you can access.

Don't agree the first point unless you are a very large credit card user (in particular can put significant business expenditure through the card). The biggest points earning potential for me is signon bonus not ongoing spend.

The trouble with the second theory is that only limit is recorded by the credit bureaus not balance. The banks can't make decisions based on information they don't have! Incidentally that's what they wanted but the consumer advocates argued against it.

 

[lovetravellingoz]

The problem, apart from poor repayers, will be for those on low incomes with many cards. (ie retirees in some cases). This will IMO see such people knocked back as banks will be worried about the large possible debt. so those currently aplying on low inclomes who have been successful because they did not list all their cards may now get caught out ( I do not list mine either at present...)

For those still employed/self employed with good incomes I would expect no problems.

Being a churner I cull regularly, however I also have culled some extra cards like the free for life Citi to lower my total credit limit.

I very much doubt with my circumstances that any card application would be knocked back just because I have 2/3 other cards.

I have had up to a dozen concurrently in the past. Going forward this many may not be possible.

 

[Renato1]

I disagree, it makes it easier to churn.

because a lender could see that you have applied for 10 credit cards in the last 3 years, but only have 1 current.

Easier to churn yes - if focused solely on getting an approval. But also harder to manage the overall churn process, and with a likely loss in functionality.

If one has an Amex Platinum Edge card earning say around 60,000 points a year, another much lower point earning card for all other payments, and a card for foreign exchange free overseas purchases - it is going to be kind of difficult closing those useful cards, and reducing them to one or two new ones while making sure that bills are paid (e.g. phone bills, health insurance bills, water bills etc etc). Some of the functionality afforded by the current useful cards will be lost if one wants to maintain the churn activity.

Regards,
Renato