The 60 day credit-rating ‘grace period’ on bills and payments is well and truly in the rearview but many consumers may still be unaware of the risk. Since December 2012, all bills paid more than five days late (with the exception of utilities and telecommunications) appear as black marks on consumers credit record, set to hang around for two years and cause problems down the road. To get on top of things Australians need to rethink their priorities to maintain a clean credit record.
In a recent newspoll survey of 1200 consumers, nearly 30% of people said they were prepared to delay mortgage repayments if cash ran short. In fact, the great Australian dream is the most popular bill to ‘let slide’ when strapped for cash. With the next most likely contenders being Pay TV and electricity bills.
However, under current rules, payments more than five days late are reported as “not made” and, will do damage to your credit rating. Those accustomed to teetering on the edge and making the most of the old 60 day rule to manage their cashflow will put themselves at a disadvantage when it comes to applying for loans and credit cards.
The only real solution is to get ahead of the curve. Here’s what you can do to protect yourself:
1. Automate payments
Take the time to automate all your payments so that you aren’t hassled with fiddly manual transactions every month. It’s much easier to keep an eye out for errors in your banks statement than to pay manually every time you get a bill. Setting aside money for your bills at the beginning of each paycycle in a separate account will give you peace of mind and make sure you aren’t scrambling to cover your basics at the end of the month.
2. Build a buffer
It’s worth working towards saving an emergency lump sum you can draw on if you run into any of life’s little bumps (like redundancy or illness) that affect your income and ability to pay the bills. A good rule of thumb is to aim for three months of your typical living expenses. It might take a while, but the peace of mind (and sparkling credit rating) is worth the effort.
3. Cut expenses with better deals
If you’re struggling to cover your current financial commitments, it’s almost certainly worth looking at whether there are more competitive offers in the market. Start with your biggest expenses like mortgages, personal loans and credit card debt – comparing what’s available and getting a better deal could make your life a lot more comfortable without affecting your lifestyle.
4. In a real worst case scenario …
Let’s face it, sometimes accidents happen. If you find yourself facing the unpleasant choice of which bill not to pay on time, don’t let mortgage repayments slide. Utilities and telecommunications are the two areas that will retain a 60 day payment window before appearing on your credit rating, so if you absolutely must delay a payment, make it one of those.
The good news?
Under the old system, credit reports included credit applications but didn’t mention whether the credit was approved or declined by the credit provider. Under the new regime, credit reports include when a credit account for the mortgage, credit card or personal loan is opened and closed, credit limits and payment history.
The silver lining is that this additional information will help the 10% of Australians who have had occasional problems but are generally good at paying on time, to restore their credit-worthiness more quickly.
However, serial late payers who managed to get away with it under the old reporting system will find it harder to get credit if they don’t get organised.