New information relating to financial hardship from July 2022. Let’s explore what those changes are and what it means for you.
A credit report is a detailed record of your credit history, including the types of credit you’ve had and how you’ve repaid those debts.
Importantly, your credit report may include a 24-month history of whether you’ve made your loan repayments on time. This is known as “repayment history information” and a good history will help you to get approved when you apply for credit.
An update to the law will change how repayment history information is recorded in a credit report when a borrower and their lender agree to a “financial hardship arrangement”.
A financial hardship arrangement is an agreement between a borrower and a lender to adjust the borrower’s loan repayments because something unexpected has happened which has a big impact on your ability to repay. Payment deferrals caused by natural disasters are good examples of when this might happen, but other circumstances such as illness or relationship breakdown might also lead to such an outcome.
Previously, your credit report might have shown you had missed repayments during the arrangement – without making it clear that this was due to financial hardship and done with the agreement of the lender.
The changes to the law will mean:
- The repayment history information on your credit report will reflect what was agreed under the financial hardship arrangement. For example, if the lender agrees for you to temporarily make half your normal repayments, your credit report will show that the payment has been made if you meet that agreement.
- The credit report will also put a “flag” alongside your repayment history information that means that the repayment history is associated with a special arrangement – in the credit report this will be referred to as “financial hardship information”.
This means that if you need financial hardship assistance you can avoid having your repayment history impacted. At the same time, if you were to apply for a new loan with a different lender, they would understand you had received assistance and in order to be a responsible lender would likely want to discuss your up-to-date circumstances before agreeing to lend.
How else do the changes protect you?
The changes to the law include extra protections for you, including:
- Limiting the circumstances in which other lenders can be told about your financial hardship arrangement – so other lenders can be told if you apply for another loan with them, but not if they are trying to collect overdue payments on existing loans
- Limiting what a lender can do with your financial hardship information when they do find out e.g. a lender can’t use the information as the sole basis for closing down a credit card
- Deleting the financial hardship information from your credit report after 12 months (compared to 24 months for regular repayment history information) so that a temporary setback doesn’t have a lasting impact on your credit report
- Prohibiting a credit reporting body (which holds credit reports) from including any financial hardship information when calculating your credit score
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You can now check your credit report, for FREE, every three months (previously every 12 months) from each of the three credit reporting bodies.
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Your credit report can now also include a credit rating, which is an indication of the ‘band’ that the credit score sits in (e.g. ‘below average’, ‘average’, ‘good’ etc).”