As a result of the COVID-19 pandemic, many lenders are now offering an opportunity to hit pause or defer mortgage repayments for up to six months. Under normal circumstances, missed loan repayments are recorded in consumers’ credit report as part of the 24-month record of repayment history information. Each month you miss a payment, the repayment history information will worsen.
Aussies impacted by COVID-19, who are seeking a payment pause or deferral on their loan repayments, do not need to worry about its impact on their credit report.
Q 1: If I enter into a payment pause or deferral arrangement with a credit provider is that noted on my credit report?
We understand COVID-19 is taking its toll and a lot of borrowers are now unable to meet their debt repayment obligations or are worried about their ability to make payments over the coming months.
As mentioned above, most lenders are offering pauses or deferrals on mortgage repayments for up to six months. For many, this extends to other products as well, like personal loans, credit cards and auto loans.
If you have been granted COVID-19 assistance from your lender - a payment pause or deferral, it will not show as a missed payment on your credit report. Instead, the repayment history information will either be reported as “up to date,” or no repayment history information will be reported. Additionally, lenders will not list defaults against any consumer that has been granted assistance due to hardship resulting from COVID-19.
Put simply, you will not be punished in your credit report for requesting a payment pause.
The first step to take if you need help, is to speak to your lender and ask how they can assist you. Lenders are aware that some customers are finding it hard to get in touch. Do not worry, you will not be disadvantaged if you are delayed in making contact.
Q 2: What about all the other bills like phones, internet, utilities and more?
Your repayments on these types of bills are not reported in credit reports.
You would only be reported if the provider listed a default against you, but they can’t do that if you’ve requested hardship assistance, and they would need to advise you if they were contemplating default action.
So, if you need assistance with making bill payments during the COVID-19 crisis, its important you let your service provider know. Service providers are doing their best to help their customers through these difficult times – they can help you get through to the other side and get back on track.
Q 3: Is there a stigma associated with applying for hardship assistance?
Lenders understand that people seeking hardship assistance are usually there because of circumstances outside their control, such as bushfires, redundancy, and now COVID-019. So, there is no real stigma around seeking hardship assistance.
Lenders offering payment pauses are making the process as easy as possible, but you should let them know that you need help. The sooner you do that the sooner you can start planning for the future.
Q 4: How will my credit score be impacted? What is the impact of payment pauses on my future mortgage, credit card, or personal loan applications?
Many consumers subscribe to websites that provide a credit score. But while those scores give consumers a snapshot of the information in their credit report, most lenders do not just rely on that score.
Credit providers also consider factors such as your income, expenses, and employment status. They are not in your credit report and are not factored into the credit scores provided by these websites.
If you apply for credit in the future, before approving your loan, lenders will take your whole situation into consideration – not just whether you needed help with repayments during COVID-19, but also things like what your income and expenses will be going forward.
Seeking assistance from your lender due to COVID-19 will not exclude you from applying for credit in the future. Please keep in mind that most lenders do not just rely on a single credit score when they assess you for a loan or credit application.
For information on how lenders are supporting their customers that are impacted by COVID-19, click here.