The real price of credit reporting misconceptions

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THE IDEA that people should not check their credit reports because ‘it’ll hurt your score’ is one of the most damaging myths in Australian finance. Home loan applicants who postpone checking their credit files for months miss errors that ultimately delay applications and cost them better interest rates. Brokers have an important role to play in busting this damaging myth; misunderstandings about credit reporting create unnecessary barriers between consumers and the financial products they need. For brokers, filling these knowledge gaps provides an opportunity to better serve clients and build stronger relationships.

Arca is the only industry association dedicated solely to consumer credit. The organisation brings together Australia’s leading credit providers and reporting bodies to improve data protection and make credit more visible, accessible and easily understood. Through advocacy, governance, education and engagement, Arca shapes best practices and ensures Australia’s credit system is robust, respected and trusted. Arca’s mission is to enhance the availability of credit through responsible and efficient credit management policies and practices, making credit work for all Australians. Arca’s members include Australia’s largest banks, mutual banks, consumer finance companies, fintechs and credit reporting bodies, accounting for 95% of all consumer lending in Australia.

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ELSA MARKULA, ARCA

The responsibility brokers carry extends far beyond simply matching clients with lenders. For many Australian consumers, their understanding of the credit system comes via a broker, creating a significant obligation for these financial intermediaries. “It’s a big responsibility assumed by brokers,” says Elsa Markula, chief executive officer at Arca (formerly known as the Australian Retail Credit Association). “It also means consumers may be relying on brokers to explain credit reporting and the impact it has on their credit health.”

ELSA MARKULA, ARCA

Markula explains that consumers who understand their credit health are more likely to make better financial decisions. “A consumer who understands their credit health and credit reporting is much more likely to only seek credit they are able to afford and to feel confident in asking lenders for help when they need it,” she adds. The flow-on effects reach beyond individual transactions. Consumers who maintain realistic expectations about their credit health and proactively seek assistance experience less financial stress and make choices that improve rather than worsen their situation.

Recent YouGov research commissioned by Arca highlights how widespread credit reporting confusion remains. One-third of Australians have never checked their credit report, while only 21% have done so within the past year. Age appears to influence confidence levels, with older Australians more likely to feel they understand their credit reports completely. Generation X consumers report 50% confidence levels, while baby boomers reach 55%. This contrasts sharply with Generation Z (33%) and millennials (30%). When facing financial stress, 55% of Australians would attempt to improve their finances independently, while 40% would consult friends and family. These approaches may miss professional guidance that could prevent minor problems from becoming major ones.

Perhaps the most consequential misconception involves financial hardship assistance. Many brokers and consumers believe seeking help will permanently damage credit scores, when, in fact, it is not even legal to include information about hardship in a credit score. “Misunderstanding around hardship support is stopping people from seeking help they need,” Markula says. The reality contradicts this fear: financial hardship arrangements aren’t recorded as missed payments, and notes about hardship support disappear from credit reports after just 12 months, compared to five years for defaults.

“A consumer who understands their credit health and credit reporting is much more likely to only seek credit they are able to afford and to feel confident in asking lenders for help when they need it”

“Checking your own credit report has no impact on your credit score. It’s a soft check, not a credit application. Your credit score only changes when a lender does an enquiry”

Persistent misunderstandings about credit health are undermining financial decisions across Australia, creating challenges for brokers and their customers alike

While it won’t make you a cappuccino, ScotPac’s Partner Portal makes helping commercial clients so fast and easy brokers will wonder how they did without it

Recognising these knowledge gaps, Arca developed CreditSmart®, an information website designed to help consumers understand Australian credit reporting. The platform aims to educate consumers on how credit reporting operates in Australia by providing free, objective and easy-to-understand resources to help consumers take control of their credit health. “CreditSmart’s purpose is to empower you to understand how your credit choices affect the information that credit providers can access, and how you can view and control that information,” Markula says. “We are not a credit repair organisation; we believe that consumers should be empowered to correct credit reports without needing to pay a third party.” The platform’s consultant resource section provides downloadable factsheets on key topics, plus Easy English leaflets that brokers can use to support clients and reinforce information they’ve provided. Arca is the peak body representing organisations involved in credit reporting data disclosure, exchange and application in Australia. Its members include the four major banks, credit reporting bodies, specialist consumer finance companies and marketplace lenders.

68%

Outcomes for consumers who received financial hardship assistance

Among those who received financial hardship assistance, 68% applied for further credit, with 55% receiving approval. Only 13% faced rejection, demonstrating that hardship support doesn’t block future borrowing opportunities. The human cost of this myth is substantial. One in five people who needed help didn’t ask for it, with 43% unaware that assistance was even available.

The hidden cost of credit confusion

The persistence of misunderstanding

CreditSmart® – a broker resource

Published 25 Aug 2025

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applied for further credit

The belief that checking your own credit report lowers your credit score persists, despite being entirely false. This misconception prevents consumers from monitoring their financial health and identifying problems early. “Checking your own credit report has no impact on your credit score,” Markula explains. “It’s a soft check, not a credit application. Your credit score only changes when a lender does an enquiry, like when you apply for a loan, credit card or BNPL product, or if other information is added to or removed from your credit file.”

When consumers check their credit reports, only they can see the activity. While credit reports include notes about self-checks, lenders cannot access this information, so it can’t influence their decisions. Despite this, Australians continue relying primarily on banks (40%), financial advisers (33%) and friends and family (32%) for credit advice. Some 4% turn to credit repair companies, which often spread misinformation, including this particular myth. Encouraging self-checking not only builds consumer confidence in managing credit, it eliminates third-party costs and unfounded fears. “Proactively checking your credit report helps you stay informed and protect your credit health. Regularly checking your credit report can also help you spot errors, identity theft or fraud early,” says Markula. Younger Australians are beginning to challenge traditional approaches to credit management and are more willing than their elders to check their credit scores. “Gen Z are becoming more proactive about their credit,” says Markula. In fact, 93% of Gen Z consumers now actively seek advice. Their information sources are shifting too. While they still turn to banks (50%) and financial advisers (39%), they’re also embracing online sources (26%). “[This shows] a shift towards smarter, self-managed credit behaviour.”

SoURCES OF CREDIT ADVICE

Source: YouGov/Arca

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Myth one: Hardship equals disaster

Source: ARCA

received approval

55%

faced rejection

13%

chose not to ask for help

20%

did not know help was available

43%

Myth two: Self-checking damages scores

AMONG ALL AUSTRALIANS

AMONG GEN Z AUSTRALIANS

BanksFinancial advisersFriends/familyCredit repair companies Online sources

40%33%32%4%No data

50%39%No dataNo data26%

Myth three: Buy now, pay later isn’t credit

The rapid growth of buy now, pay later services has created new areas of confusion. Many consumers don’t recognise BNPL as credit, leading to poor decision-making and unexpected impacts on credit files. “BNPL is a form of credit, just like a credit card or loan, and now it’s recognised as such under the credit law,” Markula says, referring to the National Consumer Credit Protection Act. Recent regulatory changes have strengthened this position. As of 10 June 2025, BNPL providers must follow responsible lending laws when consumers open new accounts or increase limits, and this includes conducting credit checks. These checks appear on credit reports the same way as on credit card or personal loan applications. While a single BNPL enquiry won’t automatically drop credit scores, some providers now share repayment history information, making missed payments visible to future lenders. With BNPL used by one in five Australians and ranking as the third most common credit product, behind credit cards (58%) and home loans (21%), understanding its credit implications has become essential.

For brokers seeking to stay current with regulatory and industry changes, Arca offers ongoing support through various channels. The organisation provides education through industry associations such as the MFAA and mortgage aggregators like AFG. “Brokers can access CreditSmart today, for free,” Markula says. “If brokers are interested in understanding Arca’s work in more detail, we provide education through industry associations or mortgage aggregators.” The organisation encourages direct engagement, inviting brokers to contact Arca to facilitate involvement through their industry association or aggregator. Representing Australia’s broad credit industry spectrum, Arca works closely with members through working groups and individual engagement to understand best practices and identify challenges that make good practice difficult to achieve or maintain. These insights inform published guidelines for members, helping ensure appropriate standards in data protection and responsible credit management across the industry.

Supporting broker education, ensuring standards

The cost of credit reporting myths extends beyond individual transactions. When brokers lack comprehensive knowledge about credit reporting, they cannot fully serve their clients’ interests. And when consumers operate under false assumptions, they make suboptimal decisions that can affect their financial wellbeing for years. Breaking this cycle requires targeted education that addresses specific misconceptions while providing practical tools brokers can use immediately. Resources like CreditSmart represent one approach, but changing entrenched beliefs requires consistent effort across the industry. As the credit landscape continues to change, with new products like BNPL becoming mainstream and regulations adapting to consumer needs, the importance of accurate information becomes even more pressing. For brokers, the upside of better credit reporting practices translates into more satisfied clients, smoother transactions, and opportunities to provide genuine value beyond product placement. Brokers who invest in understanding these changes position themselves to thrive, while those who perpetuate outdated myths risk becoming irrelevant. And for consumers, having a clear idea about credit health means more certainty and confidence to act appropriately. “Consumers who are realistic about their credit health and proactive in getting help are happier consumers: they’re less likely to face financial stress, and where they do, they’re more likely to make choices which help them deal with that stress rather than make it worse,” says Markula.