Australians impacted by COVID-19 who are seeking a payment pause or deferral on their loan repayments, need not worry about the impact on their credit report, confirms consumer education website CreditSmart.
Backed by the Australian Retail Credit Association, the peak industry association for consumer lenders in Australia, CreditSmart is a website dedicated to educating consumers about credit reporting in Australia. Due to the fallout from the COVID-19 pandemic on people’s finances, CreditSmart has witnessed a spike in website traffic and queries on hardship assistance and the impact of hardship assistance on consumers’ credit reports.
Many Australians who have lost their job or are experiencing reduced income are now unable to meet their debt repayment obligations, or worried about their ability to make payments over the coming months.
What should Australians do about their credit repayments?
CreditSmart encourages consumers to contact their credit providers directly, as most lenders are offering pauses or deferrals on mortgage repayments for up to six months. Many lenders are extending this to other products as well, including personal loans, credit cards and auto loans.
Mike Laing, CEO of the Australian Retail Credit Association says: “Lenders offering payment pauses are making the process as easy as possible, but you do need to advise your lender that you need help.
“Lenders are aware that some customers are finding it hard to get in touch. There is a large number of people seeking assistance at the same time. Don’t worry, you won’t be disadvantaged if you are delayed in making contact.”
However, Mr. Laing warns Australians to be mindful of how they use their credit accounts while any payment holiday is in place. “While you might have access to the full limit on your credit card while making no or reduced repayments, you will have to eventually repay back the credit you use, plus any interest charges. If you are under financial pressure, it’s best to only use your available credit as a last resort – and repay it as soon as you are able.”
Impact on credit report
Under normal circumstances, missed loan repayments are recorded in consumers’ credit report as part of the 24-month record of repayment history information. Each month you miss a payment, the repayment history information will worsen.
However, for consumers who have been granted COVID-19 assistance from their lender, a payment pause, or deferral won’t show as a missed payment on their credit report. Instead, the repayment history information will either be reported as “up to date,” or no repayment history information will be reported.
Additionally, lenders will not list defaults against any consumer that has been granted assistance due to hardship resulting from COVID-19.
“If you apply for credit in the future, before approving your loan, lenders will take your whole situation into consideration – not just whether you needed help with repayments during COVID-19, but also things like what your income and expenses will be going forward,” added Mr. Laing.
Credit score and access to future credit
Many consumers subscribe to websites that provide a credit score. But while those scores give consumers a snapshot of the information in their credit report, Mr Laing says most lenders don’t rely on that score.
“And lenders don’t just look at the information in your credit report when they assess loan applications.
They also consider factors such as your income, expenses, and employment status. These things aren’t in your credit report and they aren’t factored into the credit scores provided on those credit score websites.
“Mr Laing emphasises: “Seeking assistance from your lender due to COVID-19 will not exclude you from applying for credit in the future.”
“Once the crisis is over, consumers will be back in the market buying properties, cars and other things on credit. We know that many Australians are currently experiencing financial pressures due to COVID-19. Lenders are doing their best to help Australians through these difficult times – and get back on track once the recovery begins.
If you need help, the first thing you should do is contact your lender right now and ask what type of assistance is available to you” concluded Mr Laing.
Visit www.creditsmart.org.au for more information on how you can maintain your credit health.