COVID-19: What does it mean for my finances and my credit health?
Credit in the time of COVID-19
The impact of the novel coronavirus, COVID-19, is being felt across the globe, with national economies suffering, businesses being forced to close, and millions of people finding themselves either unemployed or in difficult financial circumstances.
Fortunately, in Australia, banks and other credit providers are stepping up to try and ease some of the challenges their clients are facing.
Most lenders are providing hardship assistance options to pause or defer mortgage repayments for up to six months. Many are also extending this to other products as well such as personal loans, credit cards and car loans.
Contacting my lender
Contact your lender as soon as possible if you find that your financial position has been affected and you need help meeting your loan or credit repayments.
Many lenders and financial institutions have set up dedicated teams to help customers through the crisis. It’s important to understand though, that it may be difficult to get in touch with them right now because of the high volumes of calls they are receiving, however, all lenders are doing their best to respond as fast as they can.
The majority of lenders are also simplifying their processes, so you won’t need to provide a lot of information about your circumstances. Just remember, hang in there – your lender will get to you and ensure you are not disadvantaged.
How do payment deferrals work?
A payment pause or deferral on your loan means that the lender agrees to not take enforcement action in relation to payments that you miss during the period of the COVID-19 relief period.
If you opt for a payment pause or make lower payments than usual, you will have to make up repayments later on – your lender will explain when and how that will happen.
Impact on your credit report
Normally, failing to make a monthly payment would be recorded as missed payments in your credit report, and be on there for 24-month. 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 or has requested assistance due to hardship resulting from COVID-19.
Impact on credit score
Many consumers subscribe to websites that provide a credit score, i.e. CreditSimple, GetCreditScore and CreditSavvy. These scores give consumers a snapshot of the information in their credit report as it is derived from the credit report information.
If you’ve received a payment pause or other assistance from your lender due to COVID-19, you’re unlikely to see much change in your credit score. Lenders will also pay less attention to these credit scores when you apply for credit during the COVID-19 period, and put more focus on understanding your whole situation.
Impact on getting access to credit in the future
As always, lenders will take your whole situation into consideration before approving you for a loan or credit – they’ll want to understand how you got through COVID-19, but will be more interested in things like your assets and what your income and expenses will be going forward.
Impact on defaults
Lenders will not list a default if you’re receiving COVID-19 assistance. Lenders will also not list a default if you have requested assistance, but the lender is considering or processing your request.
Your lender is there to help
If you have any concerns about repaying your loans or credit accounts due to the impact of COVID-19 on your financial situation, speak to your lender. They do want to see you get through this crisis with as little stress as possible.
The type of assistance differs between lenders so click here to find out what your support your lender provides.