What happens to your credit rating when you lose your job? There are some things you can do when you face unemployment to reduce the likelihood that your credit rating will suffer. Unemployment is often just a temporary setback. But if during the time you’re unemployed you lose your good credit rating, you could see a temporary setback become the thorn in your side that remains for between 2 and 5 years. We look at the 8 most important things to do when you lose your job to help save your clean credit file.
By Graham Doessel, Founder and Non-Legal Director of MyCRALawyers www.mycralawyers.com.au.
8 ways to keep your credit rating safe after you lose your job.
1. Act. Most people feel like digging a hole and burying themselves in it for a while when they lose their job, but taking action immediately will save your credit file. Even if you think the situation is only temporary, you don’t have a crystal ball. You need to take steps straight away to protect yourself and your family from debt and bad credit.
2. Check your insurance. If you have taken out income protection insurance, or mortgage protection, now’s the time to make that phone call to see where you stand. It can take a while for the claim to be processed.
3. Apply with Centrelink for assistance. Don’t be too proud to ask for help. Talk to the Department of Human Services to find out what government assistance you may be entitled to and when. As with insurance, some benefits have waiting periods, so contact the department as soon as you can to know where you stand.
4. Tally up what you owe (and what’s owed to you). Work out how much disposable income you have now, and tally up all of your bills that you consider will appear in the future. You can find a great budget planner on ASIC’s MoneySmart website which could help.
5. Assess the credit you owe and where you may have trouble with repayments in the future. Work out how long your current funds are going to last. What you want to do is avoid getting into arrears with your accounts at all costs. It only takes 60 days in arrears on any account to get into ‘default’ with creditors, and this notation on your credit file will mean you will probably be blacklisted from credit for 5 years – even if you find another job and get everything back on track a month or two later.
6. Make licenced credit a priority to pay on time. Licenced credit includes your credit card and loan accounts. It needs to be repaid by the due date as a priority, due to the possibility that repayment history on those accounts is being collected. If your Credit Provider is collecting repayment history, then accounts which are more than 5 days late will appear as a ‘late payment’ notation on your credit file. This notation stays on your credit file for 2 years and too many will probably impact your ability to obtain credit, or at least affect the interest rate you are offered.
7. Notify your Credit Providers. Don’t wait until you’re in arrears, or until you’re in debt up to your eyeballs, to let your Credit Providers know you have lost your job. New laws have been introduced around financial hardship – and in your situation you are who these laws were made for! Financial hardship variations are encouraged in many industries if consumers notify their credit provider they are undergoing temporary financial hardship. Financial hardship variations can involve reduced or frozen payments and can prevent a default appearing on your credit file. Undergoing step 5 is almost essential to any successful hardship negotiation. Knowing what you can afford to pay and when, prior to talking to your Credit Providers will go a long way and ensure the newly negotiated amount is affordable for you while you are unemployed. Creditors are legally required to consider a person’s request for variation on payment arrangements, but are not obliged to agree to any hardship variation proposal put forward. But there is a trend towards offering help before defaults – so it is smart to ask.
8. If it’s too late: all may not be lost. If you are currently experiencing bad credit due to a temporary financial hardship such as a job loss, it may be worth assessing your credit history and the circumstances around any defaults placed against your name. Any listings which are deemed unlawfully placed for whatever reason could be required to be removed by your Credit Provider. For more information on this, and disputing a default, contact us on 1300 667 218 or visit our main website www.mycralawyers.com.au for more information.
If you know your finances are under control, then you can concentrate on finding the right job for you.
For further and specific money help, consult a financial counsellor in your State.
The above information is for general purposes only and should not constitute financial advice nor replace seeking help from a professional financial adviser.
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