Changes to credit reporting

For many Australians, borrowing credit is a necessary stepping stone to unlock some of life's biggest milestones – home ownership, a new car, your wedding day, to name just a few. Your credit history plays a major role in determining your access to credit products such as loans, vehicle finance and credit cards. So, it's worthwhile taking the time to understand how the credit reporting system works in Australia – especially during times of uncertainty. 

This guide aims to help consumers better understand the credit environment in Australia, including the obligations of a lender to disclose repayment history and financial hardship information to the credit bureaus. We will update this guide in line with changes or additions to the current legislation.

Up until 2014, lenders had limited access to your credit history. The credit bureaus only reported negative information, such as credit enquiries, overdue debts and defaults. This painted a pretty limited picture of your financial situation, making it harder for lenders to make fair, informed decisions when offering credit products. 

Then, Comprehensive Credit Reporting (CCR) came along. Credit bureaus began including more contextualised information on your credit files, including repayment history and positive credit behaviour. 

The benefit of lenders having a deeper understanding of your credit history means that they can make more informed decisions about your overall financial position. Having more certainty around your ability to repay a loan could result in lower interest rates and better financial products.

We've written an entire Smart Guide that takes you through a credit score crash course, but here are a few important pieces of info that will be included on your credit report:

• Personal information

• Credit enquiries made in the last 5 years

• Credit account information, e.g. your mortgage, personal loan or credit card

• Repayment history on credit products from the past 24 months

• Defaults, e.g. missed loan repayments

• Bankruptcies within the last 5 years

• Court judgements within the last 5 years

Changes to the National Consumer Credit Protection Act 2021 were passed on February 3, 2021, and will come into effect on July 1 2022. The new legislation requires credit providers to report complete repayment history information when establishing a financial hardship agreement. This may include a permanent variation to the loan terms or a temporary solution to defer or reduce an individual's payment obligations.

Financial hardship can feel different to everyone, but it generally becomes a concern when you are consistently unable to pay your bills on time. For instance, if your circumstances change and you find yourself unable to make repayments on your loan, you may be experiencing financial hardship. This might result from job loss, illness or injury, the impacts of COVID-19, relationship breakdown or natural disaster.

Thanks to the National Credit Code, all Australians have a legal right to ask for financial hardship assistance if they find themselves unable to meet their obligations. The degree of support varies between lenders, but every financial institution should be able to provide some level of assistance if your circumstances change. 

The solution generally comes in the form of a 'financial hardship arrangement.' In this case, both the credit provider and the customer will enter into an agreement that defers or reduces the customer's obligations for an agreed period of time. The lender will assess the customer's overall financial position to determine what amount, if anything, they're able to pay and for what period of time.

It's important to note that there are various types of 'agreements' that we explain in more detail below.

If you'd like to know more, our Financial Assistance team has put together a blog including some handy FAQs about accessing financial assistance, as well as this guide to your options if you can't repay your Wisr loan.

Temporary Financial Hardship Arrangement: An agreement that offers temporary relief from or deferral of your credit obligations. For example, if you lose your job and cannot meet your mortgage repayment obligations, your lender may allow you to defer payments for an agreed period while you seek new employment. 

Variation Hardship Arrangement: An agreement that requires a permanent variation to the terms of your loan. This often occurs after a long period of financial hardship wherein the customer cannot afford the lump sum payment to get them back up-to-date and instead requires their loan term to be extended or their regular repayments to be increased to cover the missed payments. 

Overdue Payment Arrangement: A 14-day 'grace period' after your first overdue payment wherein a lender cannot report a late or missed payment to the credit bureaus. This gives you 14 days to make the payment before it impacts your credit file. Once the grace period has passed, if you have not made the full payment of the amount owing, the credit provider may report this as a late payment.

If you enter into a financial hardship agreement with your lender, information regarding that arrangement must be shared with the credit bureaus alongside your repayment history information for the account. This applies for any mortgage, credit card, vehicle finance or personal loans you may hold. 

Previously, when a customer entered into a hardship arrangement with their lender, the report they sent to the credit bureaus would show a series of blanks during the period of hardship. Blanks can signal red flags for some lenders. 

Now, instead of blanks, a period of hardship will be recorded with a specific code depending on the type of arrangement: 'A' to reflect a temporary arrangement or deferral and 'V' to reflect a permanent variation to the loan. This letter will also be shown alongside repayment info. For example, if your repayments are on-time, your credit report might display ‘A 0’. If you’re late with a repayment, you might see ‘A 1’ to represent one late payment. 

When the arrangement comes to an end, and the customer returns to their regular repayment schedule, their repayments will be reported as normal. After 12 months, the period of hardship is wiped from the record, giving customers a clean slate.

If, instead, a customer simply stopped making payments and fell into arrears, this would:

1. Impact their credit scores.

2. Remain on their credit report for 24 months.

3. Likely result in a stack of late payment fees.

If you're in a strong financial position, this is just a heads up for future reference. It's always good to be aware of changes in the consumer finance world – plus, we're all about transparency, and we like to keep you in the loop.

If you're currently in a period of financial hardship or suspect that you may hit a rough patch in the near future, this is a reminder that help is available, and we actively encourage you to seek it. Having a conversation with your lender and coming to an arrangement is a far better option than falling behind on repayments and letting late fees pile up. And once you're back on track and keeping up with your regular repayments, after 12 months, your period of hardship gets wiped – clean slate!

Who can see that I've been in financial hardship?

Reporting financial hardship is a legal requirement for lenders, so this information will appear on your credit file. If you seek out any new credit products within 12 months of the financial hardship period, the lender will be able to see this information. In which case, a responsible lender may want to know more about your current circumstances before approving you for a credit product.

How long does financial hardship stay on my credit file?

This information is retained in the credit reporting system for 12 months. After this time, it will be removed from your file and will not be visible in the repayment history section of your credit report.

Will it affect my scores?

The credit bureaus are not allowed to take financial hardship into account when calculating your credit scores. This is why the new changes are such a win for customers – you won't be penalised for opening a dialogue with your lender and coming to an arrangement. We all hit rough patches from time to time, but by seeking support and making a plan to get back on track, you're putting yourself in a far better position than if you were to start missing payments and go into arrears. 

Is getting a hardship flag better than a negative repayment flag?

Simple answer – yes! A financial hardship flag or indicator on your credit file is not a reflection of bad credit management. It provides context to a lender and demonstrates that when something unexpected happened that impacted your ability to make your repayments, you made an active decision to address it and get back on track. Now that is smart credit behaviour.