A financial hardship settlement will no longer ruin your credit score

Changes to Australia’s credit reporting system came into effect on July 1, designed to better reflect the credit history of financially distressed consumers.

Financial difficulties can affect anyone at any time. A hardship arrangement is an agreement between a borrower and a lender to adjust the borrower’s loan repayments because an unexpected event has affected their ability to repay. These unforeseen circumstances may include natural disasters, illness, injury or job loss.

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

Impact on credit reports

A credit report shows whether repayments are up to date for accounts such as credit cards, home loans, personal loans, and auto loans. If someone agrees to a hardship arrangement with their lender for these accounts, its existence will be flagged on their credit report.

And rather than showing that 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 saved by noting that a special payment arrangement is in place for a period due to financial hardship. It is important to note that there will be no information in the credit report about why the consumer is entering the hardship arrangement, nor the details of the arrangement.

If you don’t have a hardship arrangement with your lender and you don’t meet your regular monthly repayments, your credit report will show missed repayments that other lenders will see if you apply for credit with them. ‘them.

The flag indicating the existence of a financial hardship agreement will be removed from credit reports after 12 months, and credit reporting agencies are prohibited from including the flag when calculating your credit score.

Access to future credit

Changes to credit reports allow the 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 financial difficulties does not prevent you from applying for credit in the future. Depending on when your hardship arrangement ended, new lenders may ask for a few more details to get a better idea of ​​your current situation, to understand if you are still experiencing hardship and if this will affect your ability to take out new credit.

It’s important to get in touch with your lender as soon as you run into financial difficulties and are struggling to repay your loan, and then work with them to find a solution.

The changes to the credit statement apply only to financial hardship arrangements entered into after July 1 and will be phased in by lenders over the coming months.

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