Changes to credit reporting from July 2022
A financial hardship arrangement is an agreement between you and your lender to adjust your credit card, personal loan, car loan or mortgage loan repayments because something has happened which has an impact on your ability to repay.
A payment deferral because of a natural disaster is an example of when this might happen, but other circumstances such as being unable to meet regular payments because of illness or relationship breakdown and agreeing to a period of smaller payments might also lead to such an outcome.
A financial hardship arrangement is usually for a short period of time, e.g. reduced payments for a couple of months. However, in some cases, it can be longer, e.g. an extension of the remaining term of the loan to permanently reduce the monthly payments.
If you are struggling to make repayments on your credit accounts or have experienced an unexpected change to your circumstances that might impact your ability to make your repayments, you should speak to your lender about hardship assistance as soon as possible.
What is new about financial hardship arrangements from 1 July 2022?
Your credit report includes your repayment history for credit accounts like credit cards, home loans, personal loans, and car loans.
From 1 July 2022, if you agree to a financial hardship arrangement with your lender for a credit card, personal loan, car loan or home loan, your repayment history will be safeguarded by the introduction of a new type of indicator on your credit report, flagging that a special payment arrangement is in place for a period due to financial hardship. The credit report will not include the reason for the hardship arrangement, nor the details of the arrangement.
In the credit report this will be referred to as “financial hardship information.”
For example, if your lender agrees to accept $500 payments per month during an arrangement instead of the usual $1000, your repayment history will say that you met your payment obligations for a month if you pay that $500 on time. If your lender has agreed that no payments need to be made during the arrangement, your repayment history will also show that you are ‘current and up to date’ with payments for that month.
Agreeing to a financial hardship arrangement with your lender shows other lenders that, while you are experiencing financial hardship, you have taken steps to take control of your financial situation and are working with your lender to get back on your feet.
How is financial hardship information used by lenders?
There are limits on what a lender can do with the financial hardship information, and those limits are intended to protect you. For example, a lender is not allowed to use financial hardship information as the sole basis for closing a credit card account or reducing its limit. Credit reporting bodies are also not allowed to use financial hardship information when they calculate an individual’s credit score.
How long does information about financial hardship arrangements stay on my credit report?
Financial hardship information – for both temporary or variation arrangements – only stay on your credit report for 12 months. After that time, it is no longer possible to tell from the credit report that a financial hardship arrangement was in place.
Why is it important to ask for assistance from my lender sooner rather than later?
Getting help early can ease the pressure for you and can help avoid late fees or other charges for missed payments. Lenders will do what they can to help you through hard times, and work with you until your finances are back on track. It may be able protect your credit report if you agree to a financial hardship arrangement by helping to avoid missed payments being recorded.
The sooner you ask for help, the sooner you can find a solution.