Your credit history will soon be available in more detail to lenders. Here's what it means for them and us.

The Federal Government has given the nod to a new credit reporting system that will give lenders much more information about consumers – a system credit providers say will help them lend more responsibly but that some consumer advocates fear may have the effect of actually escalating personal debt.

The Government has accepted most of the recommendations of an Australian Law Reform Commission (ALRC) review of privacy laws that also looked at comprehensive, or "positive", credit reporting.

At the moment Australia has a negative credit reporting system "and only the bad news counts", the head of external affairs for credit reporting group Veda Advantage, Chris Gration, says.

Currently, a credit file will show that someone has applied for credit but not whether it was granted, Gration says. It will list a default – in effect, a payment more than 90 days overdue – but won't show other bills were paid on time.

Under the new system, five further pieces of information will be added to an individual's credit reports: the type of each credit facility they have, the date the account was opened, the date the account was closed, the credit limit, plus the repayment history for the past 24 months.

A draft bill is expected early next year, with the changes scheduled to take effect on January 1, 2011 – the same time as responsible lending laws come into play under the new National Consumer Credit Code.

"It will give us a system where consumers who ought to be getting credit get fair access to it and those who shouldn't be getting access don't," Gration says.

"This is the twin to the responsible lending legislation. There's been a lot of pressure on banks to lend more responsibly and, the thing is, that's hard to do if they don't have the tools to do it."

He says repayment history will show credit providers the overall pattern – for example, is a default just a rare slip or have there been recurring problems over the past 24 months?

"That information allows consumers to prove they're a good payer; by the same token, if people are getting into a debt spiral and finding it difficult to meet payments on time, that will be clear, too," he says.

The co-chief executive of the Consumer Action Law Centre, Carolyn Bond, says there are several "very positive" aspects of the proposed reforms, such as the end to the "merry-go-round" in the event of a dispute. In future, the onus to resolve a problem will be on whichever business the consumer contacts first – whether credit provider or credit agency.

Also, only credit providers who belong to an external dispute resolution scheme will be able to list information. This should prevent instances such as the car dealer who listed a default in "retribution" for the customer complaining about the car to the state fair trading body, Bond says.

Debts of less than $100 won't be listed, which will prevent "cowboys" from using the threat to report a small default – which would be recorded for a statutory five years – as a debt collection tactic, she says.

However, Bond remains "deeply concerned" at the plan to allow repayment histories to appear on credit reports.

Research overseas shows that the more information lenders have, the more credit is provided overall, she says. So while the rate of defaults might fall, as the Government suggests, the actual number of defaults might rise because of the increased activity.

"In the US, they have access to much more information than the ALRC has proposed and they've had that for many years," she says. "But I don't think anyone would say the access to all that information was used to lend carefully."

The local proposal will specifically bar lenders from trawling through credit reports to identify people to market to – "pre-screening" must be to screen people out, not in. But Bond says that while the repayment history will allow lenders to better assess customers, "it will also open the door for them to up-sell".

Knowing the bad risks have been weeded out, credit providers may feel free to market more aggressively, she says, putting on the table more funds than the individual sought or pitching other credit products to them.

"The ones who may really suffer ... are not those that are necessarily at risk of default but those people that we all know who aren't the best managers of credit but manage to be very profitable for lenders," she says.

These people have big credit limits, don't pay their credit cards off in full each month and therefore pay high interest and when they get behind they redraw funds from the mortgage to cover the gap.

Bond says the new system may result in more risk-related pricing. "That can be an advantage for some people but I think what you might find is for those people who are profitable but not the best managers of credit, we may see some more highly priced credit products."

Gration rejects the concerns around increased lending.

"If you have laws in place that say credit providers must lend responsibly and you provide data that allows them to make that decision ... that's where the law should be. There's a moral question which some consumer advocates make about whether people should have credit but we'd say that adult Australians have the right to make decisions for themselves. Credit, while it's not milk, is not tobacco."

Bond and Gration suggest people should get ready for the changes by obtaining a copy of their credit report to see what shape it's in and to check it's accurate.

Gration says just 250,000 people a year check their credit report, even though they can do so for free (via mycreditfile.com.au or dnb.com.au).

Once the new system starts, Bond says, "be aware that if you're late paying, even a bit late paying, you might find that will be on your credit history, so pay a bit more attention to that".

Gration says repayments 30 days late will be listed, compared to 90 days now.

And consider even more carefully the offers that will be coming from lenders, Bond says. "They are already very aggressive and they'll be more confident because they have that credit history. The question is whether that will mean there'll be more lenders who are a bit more gung-ho."

Key points

Credit reports will include greater detail from 2011.

Repayment histories will be among the information added to reports.

Lenders and credit agencies say this information will help them lend more responsibly.

Consumer advocates are concerned it may also help them market more aggressively.