Consumer credit reports are used by lenders and other creditors to obtain information about individuals’ credit and loan history, and their track record of repayments.  There has been a tendency for credit reports to focus largely on the negative aspects of a person’s credit history, such as missed payments or loan defaults.  As a result, there is lobbying for more information on the positive aspects of credit histories, such as a good repayment record, to be highlighted on consumer credit reports.  Reports generally include information on current personal loans and mortgages, applications for credit over the past five years, and any court judgments or bankruptcies.

The aggregated data from consumer credit reports can be a useful indicator of the current and future state of the economy.  When jobs are plentiful, inflation tends to be low and financial institutions offer lower interest loans. This overall buoyant state of the economy will be reflected in low levels of negative credit reporting.  Conversely, high levels of credit problems, perhaps related to increasing unemployment or rising living costs, may indicate that a slump in the economy is imminent, as consumers may further curtail their spending in order to address their credit problems.

When taking out a loan from a financial institution, the customer is required to demonstrate that they have a reliable source of income and will be able to pay back the loan over the agreed period.  At this stage, most borrowers have good intentions of doing so, and are confident that their salary or other income will enable them to meet the agreed terms of payment.  However, circumstances can change unpredictably.  An unexpected redundancy, long-term sick leave or a rise in the cost other necessities can easily create financial difficulties which prevent the customer from keeping up with their loan repayments.

A recent poll conducted by Bank West found that ninety-five percent of loan customers fully intended to pay off their personal loans, but that an alarming sixty percent could not currently afford to make the repayments.  This high level of default on loan repayments might be regarded as an indication of a slowing down in the Australian economy.

In truth, consumer spending and the economy are in a symbiotic relationship.  A sudden and unexpected rise in the prime lending rate is likely to lead to a reduction in home buying and other major purchases, and this in turn will result in redundancies and reduced spending on consumer goods.  Conversely, when interest rates go down, home buying and building work will increase, creating jobs and increasing consumer income and spending.  Despite the complex interaction of various economic factors including consumer credit histories, credit reports are likely to be a good gauge of the state of the economy at any one time.