COVID-19: A WAKE-UP CALL FOR AUSTRALIANS TO TAKE CONTROL OF THEIR CREDIT HEALTH
The Credit Smart COVID-19 Credit Check-up looked at Australian consumers’ attitudes towards their financial health, before and during-COVID-19, through the lens of their attitudes to using credit:
- Credit Managers - those who manage their credit usage well (40%)
- Credit Dependent – those who are dependent on credit to maintain their lifestyle (10%)
- Credit Avoiders - those who are reluctant to use or altogether avoid credit (50%)
The Credit Check-up found that more than four in ten Australians reported a decrease in household income and over 50% of credit dependents are struggling now or are concerned for the future compared to 28% of credit managers.
“We are seeing that COVID-19 has affected the incomes of those credit-dependent consumers more. We’ve also seen that Millennials and Gen Z household incomes have been hit hardest and that household income has been decreased across income and education levels.
When it comes to managing the impact of that reduced income, it makes sense that those who were credit dependent – and say they rely on credit to maintain their current lifestyle – would be less prepared to deal with the impacts of a sudden reduction to household income,” said Geri Cremin, Credit Reporting Expert at CreditSmart.
Thirty-one per cent of consumers that have experienced a drop in household income say they have relied on savings to pay for everyday expenses. Only 8% say they’ve used credit more for everyday expenses.
Lender assistance
The CreditSmart COVID-19 Credit Check-up also revealed that almost 1 in 8 (12%) Australians who have a loan have received assistance from their lender on loan repayments during the pandemic, with most of them asking for assistance due to a reduction in income.
Commenting on the findings, Ms Cremin said that lenders continue to work with consumers experiencing the financial impact of COVID-19.
“Thousands of consumers have arranged lender assistance in the form of payment pauses or deferrals to help them get back on track with their credit health.
It is important for consumers who continue to be severely impacted, to keep in contact with their lenders so they can together determine the best long-term solution for their own circumstances,” said Ms Cremin.
Maintaining good financial habits during a pandemic
Three quarters of consumers (72%) admitted that their spending, savings, and credit habits have changed as a result of the pandemic. The survey saw changes to spending, savings and credit habits both in Australians that reported a reduction in household income (88%), and those whose income hasn’t been affected by the pandemic (58%).
Those experiencing a drop in household income made the biggest changes:
- 49% budgeting more closely compared to 31% of consumers that had not experienced reduced household income
- 30% repaying debts vs 14%
- 14% deferring significant purchase vs 5%.
Further, one in three Australians are now shopping around more, comparing prices, and are reviewing their budgets.
The survey also found that more than 40% of Australians have checked their credit report (up 4% from March) and 30% of Australians checked it in the last 12 months. Almost half of these were Millennials, signalling intent to understand their finances and credit health better.
Ms Cremin said these findings were a positive sign that Australians are taking control of their credit health.
“Despite the current pandemic and financial situation for a lot of Australians, it is really positive to see so many consumers taking action to ensuring that their positive credit behaviour continues after the pandemic,” said Ms Cremin.
“There are encouraging signs that Australians will come out of the pandemic more informed and aware of their credit health. Most respondents reported they’d continue the positive changes to their credit behaviour after the pandemic: 39% said they would continue to budget more closely and avoid over-spending on non-essentials, 14% said they’d try to pay off their debts faster in future, and 12% said they would try to reduce their debt levels after the pandemic.”
The number of people looking to make a significant purchase in the next 12 months has also decreased – the exception being the Millennial cohort, with 29% stating they were thinking about making a significant purchase, most likely in property.
“While COVID-19 has shifted consumers’ buying behaviours to focus on necessities and reducing debt levels, our research is also showing that certain segments are actually looking to capitalise where they can in the next 12 months.
“It is important for all segments to understand how adopting good financial habits can help manage the impact of the pandemic and can help prepare for big-ticket purchases in the future.
It’s also important to note that seeking assistance from your lender due to COVID-19 will not exclude you from applying for credit in the future – a lender will take your whole situation into consideration when you’re applying for a loan in the future,” continued Ms Cremin.
To maintain your credit health during the pandemic, CreditSmart has four tips for consumers to follow:
- Know what’s on your credit report. You have a right to a free copy of your credit report each year. Getting to know what’s on your credit report is the first step in taking control of it.
- Make a budget and stick to it. In the current environment, responsible spending and positive credit behaviour will ensure that your credit health is in its best possible condition after COVID-19
- Be conscious of other repayment obligations. Make sure you are not paying some repayments at the expense of others. Buy Not Pay Later services are an example of where your repayment may be at the expense of other debts, such as your car loan or lease, your mortgage or credit card
If you are having trouble making payments talk to your lender. They will advise on how they can assist you and are doing their best to help customers through this difficult time.