It’s becoming harder to manage our money as the cost of living keeps going up, so it is more important than ever to take control of your finances. One way to do that is by looking at your ‘credit report.’ It might sound complicated but understanding it can make a big difference when it comes to dealing with higher living costs.
Let's explore why your credit report is important, how it gets affected by the cost of living, and ways to keep it healthy during uncertain times.
Why Your Credit Report Matters
Your credit report is like a detailed diary of your credit history including the types of credit you’ve had and how you’ve repaid those debts. It includes personal information to identify you, loans you’ve opened or applied for and a month-by-month repayment history.
When living costs go up, your money can get stretched, which can affect your credit report in a few ways:
- If you missed a payment on your credit card, personal loan, car loan and home loan, this information is noted on your credit report as your credit report includes a 24-month record showing how you manage your repayments on these accounts.
- Although missing repayments on a buy now pay later (BNPL) arrangement won’t show up on your credit report, if you default on the arrangement, it could lead to a lender placing a default on your credit report which could impact your ability to access credit elsewhere.
- When things get tight, you might think about getting more credit. Your credit report shows a 5-year history of your credit applications so avoid making multiple credit applications in a short period of time as it can make you look risky to lenders. Try to only apply when you really need it.
Tips on how to keep your credit report healthy, even when living costs go up:
Tip 1: Know what’s on your credit report:
- Your credit report provides a summary of the credit that you have had and how you have treated it, including how much credit you have, and whether you are keeping up with repayments.
- Your credit report also includes a credit rating and/or credit score, which is an indication of the ‘band’ that your credit score sits in (e.g. ‘below average’, ‘average’, ‘good’ etc).
Tip 2: Check your credit report regularly:
- You can check your credit report, for free, every three months from each of the three credit reporting bodies (Equifax, illion & Experian).
- Once you have your credit report, carefully review it for any errors, discrepancies, or fraudulent activities. Look for inaccuracies in personal information, incorrect account balances, or accounts you don't recognise. Dispute any mistakes you find with the credit reporting bodies to ensure the information being used to evaluate your creditworthiness is accurate.
Tip 3: Be sensible with credit:
- Don’t borrow more than you can handle.
- Pay your credit card bills and loan repayments on time.
- Be conscious of other repayment obligations. Don’t let your Buy Now Pay Later repayments mean that you miss your other loan payments.
Tip 4: Struggling – ask for help!
- If you find it challenging to manage your credit obligations due to the increased cost of living, don't hesitate to seek guidance from your lenders. They can offer personalised strategies to help you navigate your financial challenges.
- Lenders have well-established programs to assist you if you are experiencing financial difficulty.
- Free help is available from your lender, financial counsellors or your community legal centre
Tip 5: Seek financial hardship assistance if needed
- If you are finding it difficult to make repayments on your credit accounts or have experienced an unexpected change to your circumstances that might impact your ability to make your repayments, you should contact your lender about hardship assistance as soon as possible.
- A financial hardship arrangement can take some of the burden off your credit repayments, if you’re facing unexpected challenges. New credit reporting rules mean that banks, credit unions and other regulated lenders protect your credit history and credit report in the event of entering a hardship arrangement.
- Your credit report will also show that your repayment obligations were affected by a financial hardship arrangement. This shows other lenders that, while you are experiencing financial hardship, you have taken steps to take control of your financial situation and are working with your lender to get back on your feet.
By taking steps to understand and care for your credit report, you're setting yourself up for a better financial future. When you know how your credit report works and how to keep it healthy, you're more in control of your credit health, no matter what comes your way. So, keep an eye on your credit report, pay accounts on time, and use credit wisely.