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As revealed in a study from the Australian Retail Credit Association (Arca), 15 per cent of Gen Zs believe lenders don’t check credit reports when applying for loans, credit cards, or BNPL products.
This is clearly a misconception among younger borrowers, as 70–73 per cent of Gen X and Baby Boomers are confident that lenders check their credit reports when assessing applications. This drops to 54 per cent of Gen Zs and Millennials.
Arca CEO Elsa Markula said this data is a “red flag” for the industry, as credit reporting is one of the most fundamental aspects of lending.
Markula said this misunderstanding could result in costly mistakes.
Part of the misconception lies in a lack of information for borrowers. Changes to regulation have contributed to this, as it can be tough to keep up with.
“Some changes, like the regulation of buy now pay later products (which requires credit checks), are still very new, so consumers might still think buy now pay later is not credit, and therefore do not understand that credit checks will occur,” said Markula.
If unaddressed, consumer misunderstanding of credit reports could create fear and mistrust, said Markula.
This prevents them from improving their scores through positive habits and correcting errors early.
Ultimately, this lack of awareness can lead to poor financial decisions, like taking on unaffordable debt or avoiding necessary help.
The responsibility of brokers
Markula said brokers have a responsibility to guide consumers and help dispel these myths.
Brokers, who are frontline educators, must provide accurate credit information to maintain client trust, prevent poor outcomes, and avoid approval delays caused by client misunderstandings.
There should be a collective effort across the credit industry to help turn misconceptions around, said Markula.
This article was originally published in Smart Property Investment’s sister publication, Broker Daily.