Optimism about credit health is on the rise this year according to annual research from consumer education website, CreditSmart, with 65% of Australians feeling that their credit health is under control, up 7% on last year.
Many Australians have consciously cut down their spending on everyday basics from last year (30% compared to 25% 12 months ago) and discretionary spending (19%), taking actionable steps to improve their credit health.
These changes in spending habits are a sign of optimism, as many Australians look ahead to their next big purchase that may require credit, with a quarter of people (24%) considering making a significant purchase in the next 12 months (up 8% from June 2020). Further, nearly a-third (29%) of people have checked their credit report in the last 12 months, reinforcing our earlier findings that Australians’ attention to credit health and what is in their credit files is on the rise.
Commenting on the findings, Geri Cremin said it is important for people to understand how adopting good financial habits now will pay dividends in the future when it comes to purchasing those big-ticket items. More Australians are now aware that staying credit healthy – making your repayments on time – is essential, especially when you’re looking at that significant purchase in the next few months.
“Lenders will look at your credit report to determine how you are managing your existing debt when you apply for credit or a loan. If you have a credit card, personal loan or home loan, your credit report includes information about your borrowing behaviour and credit history. This means lenders could see a 24-month track record of how you pay your accounts”, added Ms Cremin.
Despite the optimism there is some caution
The CreditSmart research looks at consumer attitudes towards credit, probing a range of behaviours including loan assistance and financial habits.
Compared to Credit Managers, Credit Dependents were twice as likely to have needed assistance on their loan repayments during the pandemic, with 17% receiving assistance from their lender.
Credit Dependents were also more likely to have their finances impacted for a longer period, with 12% of Credit Dependents receiving assistance up to the end of March this year (three times the rate of credit managers).
However, the biggest shift in credit behaviour since 2020 was a growing consumer use of Buy Now Pay Later (BNPL) products, with 21% of consumers using BNPL compared to 14% last year. Usage is most popular among the Gen Z (57%) and Millennials (34%) segments. Worryingly however, more than half of BNPL users surveyed indicated that they are currently struggling to pay their bills.
Looking ahead, one third (35%) of Credit Dependents are concerned about their ability to access credit in the future and 19% say they are struggling to maintain their credit health or have lost control of their credit health. If you’re having trouble making your account repayments, talk to your lender about how they can help. Seeking assistance from your lender will not exclude you from applying for credit in the future.
“No matter how the assistance is reflected in your credit report, lenders don’t just look at the information in your credit report when they assess loan applications. They consider other 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 by credit score websites.
“Particularly those impacted by the recent COVID outbreak, reach out to your lenders. Australia’s banks have also recently announced several measures to support affected customers”, concludes Ms Cremin.
CreditSmart recommends following these top tips to get yourself to a credit healthy position:
- Request a copy of your credit report every three months. New legislation means you can request a copy of your credit report every three months (previously annually) for free. Checking your credit report allows you to see how lenders will view you when you apply for credit.
- Make your loan repayments on time each month. It is so important that you make your repayments on time each month. Missed payments are recorded in your credit report – as are payments that you make on time, meaning you can build a positive picture of credit behaviour through timely payments. If you find you have too many accounts to pay and are overwhelmed, speak to your lender.
- Cut back on any unnecessary credit use. Take stock of what credit products you have, and whether you really need them. Checking your credit report is a great way to make sure you’re on top of all the credit accounts you have open – so you don’t forget about that ‘rainy day’ credit card.
- Be smart with Buy Now Pay Later. One of the golden rules of good credit health is to only use credit you can afford to pay off. This applies to BNPL products too. If you’re using BNPL products, make sure you have enough money in your account to pay any other commitments, as well as your BNPL repayments.
- Talk about it. Talking with your partner, friend, or family about credit health is a great way to learn new credit habits, set credit goals and plan big-ticket purchases. And if you are struggling to make repayments, talk to your lender.