Financial hardship doesn't have to trash your credit score


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Changes to Australia's credit reporting system kicked in on July 1, designed to better reflect the credit history of consumers who are in financial hardship.

Financial hardship can affect anyone at any time. A financial hardship arrangement is an agreement between a borrower and a lender to adjust the borrower's loan repayments because something unexpected has affected their ability to repay. These unforeseen circumstances might include natural disasters, illness, injury or loss of employment.

A financial hardship arrangement in a credit report shows that a person has taken steps to take control of their financial situation and are working with their lender to get back on track during difficult times.

financial hardship arrangements credit score

Impact on credit reports

A credit report reflects whether repayments are up to date for accounts like credit cards, home loans, personal loans, and car loans. If someone agrees to a financial hardship arrangement with their lender for these accounts, its existence will be reported on their credit report.

And rather than showing normal repayments have been missed, the repayment history reported will be based on the special arrangement they have in place with their lender.

This means that people will have their repayment history safeguarded by flagging that a special payment arrangement is in place for a period due to financial hardship. Importantly, there will not be any information in the credit report about the reason for the consumer entering the hardship arrangement, nor the details of the arrangement.

If you don't have a financial hardship arrangement with your lender, and you do not meet your regular monthly repayments, your credit report will show missed repayments which other lenders will see if you apply for credit with them.

The indicator noting a financial hardship arrangement exists will be deleted from credit reports after 12 months, and credit reporting bodies are prohibited from including the indicator when calculating your credit score.

Access to future credit

The changes to credit reporting enables repayment history on a person's credit report to better reflect what has been agreed with their lender to get back on track.

Having had a financial hardship arrangement does not prevent you from applying for credit in the future. Depending on how recently your hardship arrangement ended, new lenders might ask for a few extra details to get a better idea of your current circumstances, to understand whether you are still experiencing hardship and if this will affect your capacity to take on new credit.

It is important to get in touch with your lender as soon as you are experiencing financial hardship and have trouble making your loan repayments - and then work with them to find a solution.

The changes to credit reporting only apply to financial hardship arrangements made after July 1, and will be implemented progressively by lenders in the coming months.

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Geri Cremin is a credit reporting expert and spokesperson at consumer education website, The CreditSmart website is owned by the Australian Retail Credit Association, the peak body for organisations involved in the disclosure, exchange and application of credit reporting data in Australia. She has a Bachelor's of Law from QUT and a graduate diploma of legal practice from ANU.