How is your credit report affected during COVID-19 and Financial Hardship?
Australia, along with many countries around the world is facing unprecedented challenges cause by the coronavirus (COVID 19). The Australian Government recognises that individuals and businesses in difficult financial circumstances will require assistance or a grace period to get through it, however, will need to notify their financial institution of their financial hardship. The delayed payments are often referred to in more formal terms as a ‘moratorium’. A Moratorium is simply a legal authorisation to debtors to postpone payment. It is agreed to by both the borrower and the lending institution.
This will essentially defer all reporting activity unless you are already behind in repayments when you are granted a deferral due to COVID-19, banks will not report the repayment history information, and leave the field blank for the duration of the deferral period only. When the COVID-19 repayment deferral period has ended, banks will determine how to report the repayment history information to the credit reporting agencies depending on your situation.
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. Some telecommunications companies and Energy companies are also offering relief.
We recommend that you contact your lender as soon as you realise that you are in difficulty or that you find that your financial position has been affected and you need help meeting your loan repayments.
Most financial institutions have set up dedicated teams to help you through the crisis. It is important to stick to whatever arrangements that you make with them so that your credit score is not affected.
Three main options that you can negotiate during hardship or specifically during COVID-19 are:
- Delaying scheduled loan repayments
- Waiving fees and charges
- Interest free periods or no interest rate increases
As you approach the end of your six-month loan repayment deferral period, lenders will have outlined stages to repayment.
If you can restart paying your loan, then you’ll be required to do so at the end of your deferral period.
If you are in ongoing financial difficulty, you may have your loan restructured or varied to allow you to return to paying off your loan.
If you can’t restructure, you may be eligible for an extra deferral period of up to four months.
During this four-month extension, you will be expected to work with your bank to find the best solution to return to repayments.
It’s important to note that this four-month extension is not automatic, it will only be provided if your lender believes will genuinely benefit from extra time off your loan repayments.
What happens If I cannot pay after this?
If, during or at the end of any deferral, you cannot make repayments, you can be assisted through your lender’s financial hardship process to determine your best long-term solution.
How is the interest calculated if I opt for the moratorium?
If you opt for the moratorium facility, interest will be charged (but delayed and capitalised into the loan) for the number of months you have taken the moratorium on the principal amount outstanding.
So how does this work with regards to credit reporting?
The good news is that your repayment history will not be recorded or affected during this time, provided you were not in arrears before, you applied for hardship. It will simply mean that there is no record of the information noted at all on your credit report, but just for the specified period. It is very, very important that you keep in communication with your lender to ensure that you do not have the repayment records appearing on your report if the delayed repayments expire.
We are told that your score will not be adversely affected also.
If you still notice that these dates are not correct with regards to the recording of repayment history information or you require some further clarity, We Fix Credit are here to help!
You never know when you will need that loan approved in a hurry, so it is always best to fix your credit score and improve your chances of your loan being approved by having a clean credit report.