As many as as two in five Aussies experiencing some type of financial hardship thanks to increased cost of living pressures. If you’ve been experiencing financial hardship and are unable to make payments, it can affect credit rating and in turn your ability to secure loans. But there are ways you can manage this by working with your lender.

The impact of financial hardship and your credit rating

Financial hardship typically doesn’t affect your credit rating unless it impacts your ability to make repayments for loans when they’re due. For example, you might be finding it a challenge to pay your bills and make debt repayments each month. But if you pay on time, there’s no reason it should impact your credit rating.

The definition of financial hardship is based on your behaviour and repayment outcomes. With a more detailed Australian credit reporting system taking effect, you should make sure you make every attempt to pay on time. Overdue payments will go on your record. For example, missed payments of more than 60 days used to be included. But now your monthly payment histories and missed payments of more than 14 days will be recorded. The 14-day grace period means that if the lender receives the payment more than 14 days late, they’re obligated to report it. On the positive side, this means your credit report will have a record of every time you make repayments on time. Any lenders you work with in the future will see an established history of on-time repayments.

Difference between loans and utilities

Note that the credit reporting system applies only to lenders who have an Australian Credit License, and it applies to products like personal loans, credit cards, home loans, car loans, and overdrafts. Your phone, gas, and electricity companies don’t report credit history information, so paying your phone and internet bill late typically won’t impact your credit rating unless the bill is left unpaid for 60 days or more.

Hardship variations and your credit report

But what can you do if you can’t make repayments on time? Asking your bank or lender for a hardship variation could be the first step. If it’s a credit card, personal loan, car loan or home loan taken out for personal purposes you can ask for a hardship variation under Australia’s national credit laws.

You need to have reasonable cause for the hardship variation, such as illness or unemployment. A hardship variation means you enter into a repayment arrangement with repayments that you can afford. You should submit your request verbally or in writing, and once you do, there’s a stay on any enforcement proceedings such as legal action.

How does this relate to your credit report? Well, when you’re asking for a hardship variation, you can ask your lender not to list defaults in repayments on your credit report. You can also, for example, ask the lender not to report your overdue payments to be listed on your credit report. It’s then up to the lender to decide whether they agree with your offer. However, if they agree to your repayment arrangement but disagree with the credit-reporting part of your terms, you have further alternatives like complaining to an external dispute resolution scheme.

Keep track of your credit rating

It’s important to manage your credit rating. Australia’s new credit reporting regime, which began in March 2014, is ramping up as the government pushes for banks to introduce stricter lending conditions. By 2018 and 2019 a lot more information about your debt-related behaviour will be available through your credit file. It’s also vital to keep track of your credit score to ensure there are no mistakes on your file, since an error could lead to a denial for a loan. Check your credit report regularly and get in touch with the credit reporting body if you need your report to be corrected.

Missing payments can affect your credit rating. But you do have choices. If you’re unable to make repayments due to a reasonable cause, you have the right under credit laws to ask your lender for a hardship variation. This can include leaving out information on your credit report so your rating isn’t impacted by the hardship. If you’re in financial hardship, the key is to talk to your lender as soon as possible.

SRG Finance assists Aussie consumers with a range of loans that the big banks often can’t offer. We understand you sometimes might need to quick access to funds for unexpected expenses, emergencies and bridging the gap between paydays. To find out more about a fast and easy to of getting same-day cash and short-term loans, contact us today.