Change your attitude towards paying your bills, and change the likelihood you will suffer from bad credit. That is the single best thing you can do to prevent bad credit in the form of defaults, and now, the dreaded late payment notation. It’s not rocket science of course, but changing your financial attitude and stopping the crazy juggling act is one of those things I have seen in my time that most people on the slippery financial slope don’t do, that they could do to get themselves on the road to long term financial recovery long before they have defaults. Without defaults or late payment notations on your credit file, you score much better in the lender’s systems. You have a much better chance at securing credit in the future, including major credit like a home loan.

By Graham Doessel, Non-Legal Director of MyCRA Lawyers www.mycralawyers.com.au.

Although we would like to believe that the credit system is foolproof there are always going to be instances where Credit Providers make mistakes, and you cop bad credit unjustly or incorrectly. That you can’t help. T

he type of bad credit I’m talking about is the bad credit which is directly attributed to you not paying your accounts on time. Instances where it’s either entirely or mostly your fault.

With our new credit laws in place, it is quite likely that at some point most Credit Providers holding an Australian Credit Licence (eg banks and building societies) will sign on to comprehensive credit reporting and be able to access and report on your repayment history. So if you’re late by more than 14 days paying your credit card, personal loan or home loan, you run the risk of having a late payment notation recorded on your credit file and remain there for two years.

A story yesterday from the Brisbane Times, Telcos and utilities could suffer under new credit rules quotes the Australian Retail Credit Association (ARCA)’s Damian Paull. ARCA are the guys that devised the Credit Reporting Code of Conduct, to go with our new Privacy Laws. Mr Paul said there is a danger that banks who chose not to report consumer repayments information and telcos and utilities – which are excluded from the new regime – could find there is a financial impact.

“Once consumers get a sense of who is reporting, what’s going to happen?,” he said.
“If I know bank X is reporting and Bank Y isn’t, what is going to happen to banks who do not report that information? What is going to happen to telcos and utilities?
“Is that going to put pressure on these organisations and their payments – I think this is probably going to happen,” he told a conference organised by Informa in Sydney on Wednesday.

These comments worry me, because it tells me that it is predicted that people who are struggling with their repayments will simply make their loan and credit card repayments on time, but miss the mobile or energy bill, because those are not subject to repayment history.

Whilst this may be true, as someone who has been involved in the finance sector a long time, it is not a sentiment I want to accept.
Fair enough, some months you may be a little short on cash. Yes, to avoid repayment history, you may want to pay your credit card, but leave your phone bill.

But for those people who are consistently unable to meet all of their repayments on time – there was no mention in the article from any of those commenting, of what they should do, to get back on track.

By acting early and taking advantage of new financial hardship laws, you can save yourself from mounting debt, late payment notations and defaults.

If you are suddenly unemployed, fall ill, separate from your spouse or have a period of intense debt stress – you should know there are laws that may be able to help you through this difficult time. By putting your hand up early– before your accounts go into arrears – you could save your credit file. But why are there not more people aware of this?

Time and again, I see people burying their heads in the sand, robbing Peter to pay Paul, until they are in so much debt it slaps them in the face. You should know that a bump in the road doesn’t have to mean you can’t borrow again, so long as you handle it the right way.

New financial hardship laws brought out by the Government last year have been designed to protect consumers during times of temporary financial hardship.

Last year, Steven Münchenberg, Chief Executive of the Australian Bankers Association, said in a statement to the media that only one in four bank customers knew that banks offered hardship assistance.

As a company involved in credit dispute, MyCRA Laywers has helped many clients in the past dispute credit listings issued during a time of financial hardship.

If the powers that be played a more proactive role in credit education, this issue would no longer be as prevalent.

In the past consumers have not been offered hardship variations with their bank, or they have not been aware they have a right to request one and have been defaulted – this locks them out of mainstream credit for five years. If you are largely aware of your rights and obligations, then you might request a variation to your credit agreement early and potentially avoid the long term pain for what is often a very temporary issue.

The earlier you act, the better off you will be. The key word here is ACT. Don’t hide from your Credit Providers and hope it will all go away. It never does.

If you are experiencing temporary financial hardship you contact your bank or building society and ask to speak with the Financial Hardship Variation Team. Using the specific words ‘financial hardship’ will help make it clear to the bank what you need. Ideally, act before you fall into arrears on your account – to save your credit file when you recover from this difficult time.

If you’re not at the point of needing a specific hardship variation with your bank, but you still struggle from time to time – don’t wait till everything goes belly up. There’s plenty of help out there for people who aren’t great juggling their finances or have found themselves over-committed. There are free financial counsellors out there who should be able to help you. Contact the Financial Counsellors of Australia www.fca.org.au for more help.

Image: Danilo Rizzuite/ www.FreeDigitalPhotos.net