The sort of information held on consumer credit reference files may be about to change, pending a review of credit reporting rules by the Australian Law Reform Commission.

The commission is due to make recommendations on a proposal that credit reporting companies Veda Advantage and Dun & Bradstreet be allowed to gather a lot more information on consumers and supply it to credit providers.

For more than a year, it has been deliberating on this and other proposed changes to the Privacy Act (which covers credit reporting). However, in the past couple of weeks, a report published by economic consultancy Access Economics, putting a strong case for change, has brought the issue back into focus.

Australia has what is called a negative credit reporting system, where a small amount of data, mostly relating to defaults, is kept on credit files. The financial services industry proposes a move to what is called positive or comprehensive reporting, whereby credit bureaus would collect a lot more information about how we manage our home loans, credit cards, personal loans and Telstra accounts.

Under the existing negative model, a credit file contains an individual's name, address, employer details and a record of credit applications made over the past five years. The file also has information about defaults (payments overdue by 60 days or more) and the date any defaults were paid.

Dishonoured cheques with a value of more than $100 are included in a credit file, as are bankruptcy orders, court judgments and "clearout listings", where the credit provider has failed to locate a debtor.

To this, the proposed "positive" model would add current credit account balances and limits, payment history (updated regularly), opened and closed accounts and more detailed information on applications.

Advocates of positive reporting, mostly banks and other lenders, argue that more comprehensive files would allow lenders to make better-informed lending decisions and reduce the incidence of bad debts.

The Access report emphasises the potential of positive reporting to help overcome financial exclusion. A small number of adult Australians (0.8 per cent) have no financial product and 6 per cent have only a transaction account.

Lenders relying on negative credit reporting must fall back on information about income when assessing credit applications.

One result is that people on low incomes may miss out on credit even though they could service a debt. Positive reporting would highlight the fact that such applicants had a good repayment history.

No one disagrees with the proposition that, as Access says, "credit bureau data provide a very limited snapshot of the potential borrower". But the argument with consumer groups has come down to whether lenders can be trusted with more information.

The co-chief executive of Victoria's Consumer Action Law Centre, Carolyn Bond, says: "I don't have any arguments with research that shows more information could improve risk assessment but I do ... with the way assumptions have been made about what credit providers would do if they [had access to] more information.

"Many lenders target a particular part of the market, where defaults are high and credit is priced to match the risk. More information could assist in more accurate pricing of risk but this doesn't make the lending any more responsible. We see an increasing number of lenders who do not even ask about income levels but base a consumer loan on [the] value of house equity alone.

"One thing I think we all agree on is that access to more information will increase the overall level of consumer debt. Some of this increase could be responsible lending but I suggest that we would see a significant increase in irresponsible lending as well." The Access report, citing overseas experience, predicts a sharp increase in consumer lending following the introduction of positive reporting. Consumer groups worry that this will put stress on already stretched households.

But Access believes the market will operate rationally - lending will increase for low-risk borrowers currently denied credit because they are erroneously assessed as high risk and will decline for high-risk borrowers who, mistakenly assessed as low risk, can get access to credit.

Bond disagrees: "We know that many lenders specialise in borrowers who already have credit problems. Such a lender may further protect itself with security or a co-borrower or may price the credit accordingly. This may help the lender's bottom line but won't necessarily mean that the credit product will not cause harm."

Access says extra information will allow lenders to make more accurate judgments when pricing for risk, leading to a more competitive market with tighter loan margins.

Bond says: "Risk assessment can be used just as much to increase rates for risk as it can to reduce rates for lower-risk consumers ... we can guess who might be the winners and the losers here."

The head of external relations at Veda Advantage, Chris Gration, says: "Our position throughout this debate has been to support stronger protection for consumers as part of any reform. Consumers groups say they want protection from hard-sell marketing using information in expanded credit files and they want an obligation on lenders to make an assessment about capacity to pay with every credit decision.

"The industry is not opposed to those principles and is looking at how they might be achieved."