The Australian Banking Association (ABA) has today announced that customers’ credit scores won’t be affected if they need to defer their loan repayments for up to six months due to COVID-19, provided they were up to date with their repayments beforehand.
The guarantee applies not only to repayment pauses on home loans, but also on other credit products such as credit cards and personal loans.
The industry-wide agreement is good news for diligent customers who have suddenly found it impossible to keep up with the bills after losing their job or having their income severely reduced.
ABA Chief Executive, Anna Bligh, said: “Australia’s banks are here to support customers who have lost their jobs or significantly lost income because of COVID-19… Customers in these circumstances should not have to worry about their credit rating as well.
For customers who were already behind in their loan repayments, the ABA has said banks will determine how to report the information once the repayment pause has ended, and opt to report nothing during the pause.
A relief for your credit history
CEO of the Australian Retail Credit Association (ARCA) Mike Laing believes people shouldn’t get overly worried about their credit score during COVID-19.
“Lenders are very aware this is a difficult time for a lot of Australians who, in normal circumstances, are very good at keeping up with their repayments, and they’ll take this into consideration,” says Laing.
He says when people go to apply for their next loan, the reality is lenders will look at a range of factors when assessing whether or not to approve a loan or a credit card, including bigger factors such as income and any outstanding debts.
- While customers who have been granted a loan deferral won’t have their credit score impacted during COVID-19, people that miss repayments without an arrangement in place are still likely to have it reported to the credit agencies.
When the financial pressure gets too much
“If you are in need of assistance it’s important you contact your bank as soon as possible, with your first port of call being the website or the smart phone app due to the very high volume of calls coming into call centres,” Ms Bligh said.
Laing says people having trouble making contact with their bank, shouldn’t worry, provided they have tried to reach out.
“In current extra-ordinary circumstances, consumers may experience long delays in getting through to a lender. They won’t be disadvantaged by that. If they are eligible for a repayment pause, then a lender will backdate it”, he said.
Laing also recommends using credit sparingly at this time. “If you are under financial pressure, it’s best to only use your available credit as a last resort – and repay it as soon as you are able,” he said.
Tips for Aussies struggling to meet repayments
If you can’t make a repayment because of COVID-19:
- Talk to your bank before you miss a repayment, rather than after when damage might already be done to your credit report.
- Contact your bank via their website or phone app. If you can’t reach them, try contacting them by email or on social media. Lenders are likely to backdate any repayment pauses if you have tried to make contact.
- Before you pause your mortgage, ask your bank for a rate reduction to help you keep up with the repayments. Repayment pauses can provide some much-needed relief but they are likely to be costly in the long run.
- If you are getting charged interest on your credit card, consider switching to a low rate card.
- Try and avoid adding to the problem (where possible). If you have a credit card, you can ask your lender to lower the limit to something you know you can manage.
- When you do get some money coming back in, try and clear your debt as quickly as possible.
- If you need independent help, try the National Debt Hotline: 1800 007 007