Will freezing mortgage payments damage your credit score?

The financial impact of COVID-19 has been extensive. Widespread business closures have left millions of Aussies out of work, with many of those still employed facing reduced hours or pay cuts.

Most banks and lenders have announced financial hardship measures to help customers whose income has been affected during this time. Despite this, many Aussies remain uncertain about whether a loan holiday or repayment freeze will impact their credit score, especially with comprehensive credit reporting (CCR) now in force.

The introduction of CCR back in July 2018 means more information can now be exchanged between banks and credit reporting agencies, including details around your repayment history. This additional data being provided means your credit score is likely to change more regularly, for better or for worse.

So how concerned about your credit report should you be if you're receiving some form of financial assistance during the crisis?

Mortgages

Good news, home loan customers - your credit score won't take a nosedive if you need to put your repayments on hold for six months.

The Australian Banking Association recently confirmed that mortgage holders who apply for repayment holidays during the crisis won't have their credit report impacted. As long as your payments were up to date prior to the COVID-19 crisis, your lender will not record you as having missed a repayment.

But before you go and hit pause on your payments, keep in mind that you won't get off entirely scot-free. In most cases, interest will still accrue during the six-month period and you'll need to repay the funds once life returns to normal.

You have a couple of options if you want to avoid deferring your repayments. Extending your loan term by a couple of years will lower your minimum repayment amount, as will switching to interest-only repayments.

You can also try and negotiate a lower rate with your lender or refinance to a better deal elsewhere. With rates as low as 2.19%, you're spoiled for choice in the current market.

Credit cards and personal loans

If you've hit pause on your credit card or personal loan repayments, the same reporting conditions will apply.

Banks have stopped minimum credit card repayments altogether during this time, though interest will continue to accrue. The sky-high interest rates on some credit cards means you could be left significantly out of pocket once the six-month period has elapsed.

Rather than let your interest pile up, it can be worth switching to a balance transfer credit card. This type of card comes with a low or 0% interest rate for a period of up to 22 months which can end up saving you a small fortune on interest.

Rent and utility payments

Under CCR, your repayment history can remain on your credit report for up to two years. But this is for licensed credit providers only. Your rental payments and utility bills are excluded from your credit file, provided they aren't a default. Late payments become a default if they exceed $150 and are more than 60 days overdue.

The Financial Rights Centre has called on utility industries to "guarantee" there will be no impact on credit reports when financial assistance is offered during this time.

If you're unable to meet your utility repayments, get in touch with your provider's hardship team. The government has also announced a six-month ban on evictions for tenants who can't afford their rental payments as a result of the crisis.

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