Impacts of the Coronavirus Pandemic on Credit Scores
A credit score is a common source of ‘worry’ for most loan applicants. Understandable because scores take a long time to build, a short time to decline and they dictate interest rates. Couple this with the chaos of coronavirus, and a credit score can become a pretty serious thing for pretty serious things – loans.
In this article, we take a look at how the coronavirus pandemic has affected Australian credit scores.
In a Nutshell
Things that damage credit scores are relative to the financial impact of COVID-19. Missed loan repayments due to reduced income, multiple finance enquiries and getting behind on bills all result in lower credit scores. Luckily, there are ways to improve credit scores and your interest rate.
The pandemic has resulted in millions of Australians tightening the belt on their finances. Keeping up with general living costs can result in cutting money normally designated to loan repayments and bills.
The Good News – There’s a lot of it.
The Australian government and financial sector as a whole are VERY well aware of coronavirus’s effect on your credit file and credit score. You’re not going to get penalised and you’re definitely not alone. Here’s why…
Assistance: If you’ve received assistance from your lender, such as reduced payments or a pause on payments, your score most likely won’t be damaged. Lenders who have granted assistance to their clients won’t put negative marks on credit files.
Financial Hardship: This means contacting your lender and showing them that your income has been significantly affected by COVID-19. The lender then readjusts your repayment plan to help you through tough times. Usually, this results in a reduced credit score but during the pandemic, most lenders aren’t listing defaults against borrowers on financial hardship.
Other Assistance: Centrelink and JobKeeper are, of course, the government approved and provided assistance packages for eligible Australians. If you have received or you are receiving these payments, your credit score won’t be affected.
More Good News
If you apply for a loan during the pandemic, you’re making a good decision. Nearly all lenders around Australia are paying less attention to credit scores. They are putting far more focus on how applicants are getting through the situation and looking at their whole situation rather than simply a score. This means if someone’s score is lower than ideal but they’ve budgeted well, they may be in a better position.
Protect Your Score
If you’re experiencing difficulty in paying your loan on time, talk to your lender. Lenders are not the enemy and are here to help. They have to keep their client and customers happy like any business. If you contact them and explain your situation clearly and honestly, you’re in a far better position than someone who hides in fear and misses payments.
Applying For a Loan
If you’re looking to apply for finance, talk to a broker. Brokers are able to match you to a lender that specialises in your circumstances. This will help avoid unnecessary enquiries on your credit file which will lower your credit score. For example, blindly applying for a loan at a bank that deals with stable income earners and getting declined will clock up enquires just to learn they won’t help. A broker can answer these questions without making enquiries.
All in All
Clearly, the coronavirus pandemic has affected almost all Australians in some way. The finance industry is helping borrowers and potential borrowers by going easy on credit score damage.
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