Does the idea of a repayment freeze give you chills when it comes to thinking about your credit score? This recent announcement might just help.
Banks across the country have been assisting struggling loan customers with their repayments in a number of different ways.
In fact, nearly 40 personal loan lenders on the Mozo database are currently offering personal loan relief during COVID-19, the majority of which are offering borrowers repayment freezes for up to at least 3 months.
So what does it mean for your credit score?
Earlier this month, the Australian Banking Association (ABA) announced that customers’ credit scores won’t be impacted if they need to take out a repayment deferral during these difficult times.
Not only does the decision incorporate home loan customers, but other credit product categories like personal loans and credit cards as well.
Mike Laing, chief executive and chairman of the Australian Retail Credit Association (ARCA) says there is no need for personal loan customers to worry when it comes to repayment freezes and their credit score.
“If you have been granted COVID-19 assistance from your lender, a payment pause or deferral, it won’t show as a missed payment on your credit report,” Laing says.
“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.”
He says that lenders understand the financial pressure that many people are under as a result of the coronavirus, just as they do when people are made redundant or for people that suffered as a result of the recent bushfires.
Will pauses affect the likelihood of me getting a loan later down the track?
While it’s true that repayment freezes will not be currently taken into consideration in your credit report, there are some other things to consider that may affect your chances of getting a loan.
Laing says that credit providers don’t only look at your credit score when assessing a loan application. They also consider other factors that aren’t in your credit report, such as income, expenses and your employment status.
“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,” he says.
“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 don’t just rely on a single credit score when they assess you for a loan or credit application.”
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