A recent survey shows the number of Aussies struggling to meet their credit commitments is increasing. Will late payment notations to be included on credit files as part of the new credit laws prevent this figure from continuing to increase in the future?
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
Results from Veda Advantage’s bi-annual Australian debt study late last month showed more and more Australians are at risk of falling into a debt spiral during an economic downturn.
Findings show that 21% of Australians are struggling to pay their current credit commitments. Despite this, a quarter also admitted they will apply for yet more credit to help them cope with an economic downturn.
Veda’s analysis of consumer behaviours if there is a period of economic stress shows:
• Most (66%) Australians would draw on household savings;
• One in four (25%) would increase their credit card limit, mortgage or loan;
• One in three, or almost 5.5 million, would borrow from family;
• Over 3.6 million (21%) would draw on their superannuation.
Veda claims the introduction of late payment notations to credit files as part of comprehensive credit reporting should prevent more people from falling into a debt spiral.
Veda’s Matthew Strassburg says “…the changes to credit reporting will make credit reports fairer and more accurate for consumers looking to borrow. The new information will include a person’s current credit limit, number of credit cards and if someone has failed to make the minimum payment on a credit card or loan on time.”
I agree, accuracy in credit reporting in Australia is paramount. Late payment notations would certainly see less people given access to mainstream credit. But the question is – how fair will this system be?
25% of people surveyed by Veda said they would increase their credit card limit, mortgage or loan if they fell into ‘economic stress.’ But Veda fails to mention the definition of ‘economic stress.’ Possibly if the stress was certain to be temporary – some people would nominate increasing their credit limit or redrawing on their mortgage as a possible short term solution to ride out the bad period. It is not certain from the results published how many people surveyed would actually choose more credit – especially new loans as a solution to a long term financial problem.
If some of those 25% who nominated ‘more credit’ as a solution intended to use credit for an extended period of economic stress, then certainly the introduction of late payments as part of comprehensive credit reporting would stop some in their tracks from gaining more credit – and rightly so, there are better solutions to debt stress than more debt.
But what if the issue is a temporary one? How can mainstream lenders truly tell if someone is a bad credit risk if they have been late making one payment? At least with a default recorded – it shows the credit file holder had been at least 60 days in arrears with their repayments.
There are so many grey areas with the introduction of these new laws, and I am nervous that more consumers than necessary could suffer a reduction in access to mainstream credit. Could more be forced to access the non-conforming market at high interest rates as an alternative? Doesn’t this further perpetuate the debt cycle and lead even more people to experience financial stress?
One important point the Veda survey highlighted was the lack of impetus to seek help if people did fall under economic stress. It is important that people know that they can seek help if they are falling into difficulty making repayments – or they feel they may in the future.
Veda’s analysis indicates that despite 21% of the population saying they are having difficulty coping or are unsure how they will make the next payment, only one in five had sought professional financial counselling.
Mr Strassberg added: “People having trouble repaying should seek help from a financial professional before it’s too late, particularly lower income earners with competing debt repayments.”
Certainly financial counselling, possibly seeking a financial hardship variation, and generally contacting a creditor prior to letting a repayment fall into arrears or into default is always the better option to avoid debt stress and bad credit history.
If you or someone you know has bad credit history which shouldn’t be there – contacting a professional credit rating repairer can help you get your life back on track and potentially remove credit rating errors permanently.
