Melanie Hearse - 9 Mar, 2020

How to protect your credit score during the Coronavirus shutdown

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Lost your source of income and assessing your financial options? The good news is banks are stepping up to help through COVID-19.

Banks have clamoured to promote the measures they’re taking to support customers who are experiencing COVID-19 related financial hardship, but what isn’t clear to the average consumer is how they may affect your future credit score.

Lenders have come out en-masse to let customers know they can apply for a ‘pause’ or variation to their terms across mortgages and other loan products for any COVID-19 related financial hardships, and the Australian Prudential Regulation Authority (APRA) has confirmed these mortgage holidays will not count as a period of arrears. 

Related: Repayments deferred but not forgotten: the truth about mortgage holidays

While banks have expanded their hardship criteria, the most important message when it comes to protecting your credit score is to communicate with your lender – making changes to your terms will not be automatically applied.

How to protect your credit score during the Coronavirus shutdown

MoneySmart advises all lenders have hardship teams who can advise you of your options which may include changing the terms of your loan, applying a temporary pause or reduction on repayments (known as a hardship variation.) You can call, apply online, or check out the Financial Rights Legal Centre sample letter generator to help you create a letter.  If you can’t reach an agreement, contact the Australian Financial Complaints Authority (AFCA) to make a complaint and get free, independent dispute resolution.

Related: RBA makes emergency rate cut in response to coronavirus crisis

And if you’re wondering whether you should get the ball rolling and apply for a hardship arrangement before the worst happens, the news is equally encouraging.

“Regardless of whether you are in hardship currently or not, lenders will most likely allow you to pause your repayments, and either show you as having made your repayments (even though paused) or show no repayments are required – and not show a repayment. Either way, it won’t have an impact on your credit score,” says David Jones, Head of Corporate Affairs at illion.

How might your credit score be affected if you can’t pay your bills?

As well as loan products, how we pay our bills can impact our credit rating. Typically speaking, lack of payment will only wind up on your report if you default for 60-days for more than $150. However, if you make a payment arrangement and stick to it, this is not considered defaulting and will not impact your credit report. And in these unprecedented times, providers will be working overtime to help those in financial difficulty negotiate alternatives. 

If you can’t pay your bills, ASIC’s Moneysmart suggests you:

  • Get in touch with your provider as soon as possible to discuss your options. They may be able to provide an extension to pay, a payment instalment plan, Centrelink deductions or help you apply for a utility rebate or voucher.
  • Check out the National Debt Helpline’s step by step guide to getting your bills under control.
  • Talk to a financial counsellor for free, independent and confidential help – they may also negotiate with creditors on your behalf.
  • Contact your local community legal centre or Legal Aid agency in your state or territory for free legal advice.
  • You can also make a complaint if you’re in financial hardship and your service provider won’t help.

You can also stay on top of credit report and its contents. “Sites like allow you to look at exactly who is reporting on your repayment history and what your current financial situation looks like to credit providers. It is especially important to check there are no negative reports if any changes are made to your usual payment habits,” says Jones.

How to protect your credit score during the Coronavirus shutdown

There is plenty of help available

  • Get in contact with your bank to see what new options are available to help you save more.
  • Contact Centrelink to see if you are eligible for any newly announced financial support.
  • If you need help working out a budget that covers any bills, instalment plans and your mortgage, contact a financial counsellor, call 1800 007 007 or visit National Debt Helpline.

Neither last nor least, if you’re feeling overwhelmed by money issues, it’s okay to ask for help. See urgent help with money for help with food, housing and bills, and emotional support.[3]

Related: Smarter ways to budget on your home loan (and still have fun)

Words by Melanie Hearse


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