New Changes in 2022 that will affect Financial Hardship and Credit Reporting
There are some interesting new credit reporting rules that come into effect from July 2022 that will change what is shown on your credit report, particularly when it comes to hardship repayments.
What are they and what do they mean for you?
Federal Parliament recently approved changes to the Privacy Act that improve the information that can be included in credit reports and give consumers better access to their credit reports. These changes:
- Enable each Australian to access their credit report free of charge every three months (previously every 12 months),
- To make it compulsory for credit reporting bodies to provide a credit score in the credit report, together with an explanation of that score. At the moment, when you call them to ask them why your score is low, you get different answers from different people, most of the time the information doesn’t help you at all.
- Help for Australians who are experiencing financial hardship to protect their credit rating when they enter into a financial hardship arrangement with their credit provider. This is a long overdue and welcome change for many.
Right now, credit report may include a 24-month history of whether you’ve made your loan repayments on time or late. This is called repayment history information (RHI) and a good history will help improve your score and benefit you greatly when applying for credit, however any missed repayments will lower your credit score. A ‘grace period’ of 14 days (applied to the first overdue payment) is allowed. During this time, a credit provider will not report a late payment to a credit reporting body. If the amount owing is paid during the grace period, there will be no record on your credit report that you made a late payment. However, once the grace period has passed, if you have not made the full payment of the amount owing, the credit provider is required to report this as a late payment to the credit reporting bodies. Generally, the higher your score, the better. Every credit provider judges a credit score based on its own internal system and affordability and application risk rules.
A financial hardship arrangement is an agreement between a borrower and a lender to adjust the borrower’s loan repayment obligations because something unforeseen has occurred which has a big impact on your ability to repay the loan on the usual date. Hardship payment deferrals caused by natural disasters or illness, loss of job or relationship breakdown are some common situations this might occur.
In some cases, if you asked for a financial hardship arrangement, your credit report might have shown you had missed repayments during the arrangement, or the repayment information being repressed – without making it clear that this was due to financial hardship and done a proper notification and arrangement with the credit provider.
The new changes to the credit reporting law will help with clarity around some things such as:
- The repayment history information on your credit report will reflect what was agreed under the financial hardship arrangement. For example, if the lender agrees for you to temporarily make half your normal repayments, your credit report will show that the payment has been made if you meet that agreement.
- The credit report will also put a flag alongside your repayment history information that indicates the repayment history is associated with a special arrangement – in the credit report this will be referred to as financial hardship information. Lenders will have access to this financial hardship information in situations where the consumer is seeking to access new credit.
You should always contact your bank prior to the conclusion of your deferral period to discuss next steps if you believe that you are unable to recommence full repayments after this time.
Another important thing to note is that even if you are short on your repayments, you can be listed as a late repayment if it’s not the entire amount due. Currently, there is no minimum requirement that there is such as for credit defaults which is a minimum of $150 for the default to be recorded, with Repayment History even if it is as low as $5 short for example you will be noted as a missed repayment. Hopefully this matter is addressed in the near future as I have noticed there are more and more consumers having issues with a low credit score because of this oversight. Repayment history makes up around 35% of your overall credit score so it’s a huge factor. For now, keep an eye on your repayment if your interest rate fluctuates your repayment will need to change accordingly. Have a good look at your statements when they come in so that you are on top of such changes. Unlike with Default Listings and Court Judgments, Credit repair cannot always assist you with late repayment history as it is a legislative requirement unless of course there is a clear error on behalf of the credit provider.
In 2022 it will be even more important than ever to communicate with your credit provider if you’re experiencing financial difficulty or not able to meet your repayment date either temporarily or ongoing. They should hopefully suggest other ways that you can protect your credit score and credit report, it will be a good idea to take a record of the communication and who you spoke to, date etc. and any supporting information that you have provided. You should, however, do this from now as there are ramifications that affect your credit score by not keeping them notified. If, however, you do speak to your credit provider and they don’t give you the help you need, consider making a complaint through their internal dispute resolution process. If you do this and have no luck, We Fix Credit may be able to assist you in a resolution that is in your favour. This can save you an enormous amount of time and hassle.
We Fix Credit is always available for a FREE no obligation assessment to see if we can help you and give you some excellent tips that you can do on your own. Phone 1300 003 655 today or email [email protected]