Editor’s note: Since this article was published, Australian banks and lenders have largely agreed not to penalise customers that opt for hardship relief. Read more here.
- Australians will still see their credit scores slugged if they take up their bank’s offer to freeze their home loan repayments.
- The Australian Banking Association (ABA) confirmed to Business Insider Australia banks are still currently being held to their reporting requirements but that they are working with credit agencies to cement a “fair reporting” arrangement.
- More details are expected to emerge next week on what that looks like.
- Visit Business Insider Australia’s homepage for more stories.
Banks are offering to freeze home loan repayments for Australians adversely affected by the COVID-19 outbreak – but it comes with a catch.
Under existing rules, banks must report any customers who take up the arrangements to credit agencies, regardless of the extenuating circumstances the coronavirus has created, a spokesperson for the Australian Bank Association (ABA) confirmed to Business Insider Australia.
As it stands, coronavirus relief packages unveiled by the banks over the last week threaten to harm the credit rating of hundreds of thousands of Australians who suddenly find themselves out of work due to no fault of their own.
A credit score – typically a number between 0 and 1,000 or 1,200 — is created by agencies using your financial information, such as whether you make loan repayments on time, to reflect your creditworthiness. It is then used by banks and lenders, in conjunction with other data, to determine whether or not someone should be approved for a loan or credit card, what their risk of default is, and even in some cases what interest they are charged.
In sum, Australians who lose their job in 2020, the year the PM described as “the toughest year of our lives”, may have no choice but to be hurt their long-term financial health by taking the appropriate mortgage relief offered by their bank at the moment. While many have bigger concerns right now, such as making ends meet, it does highlight yet another unanticipated challenge currently facing the scores of Australians doing it tough at the minute.
However, this fact isn’t lost on either credit agencies or banks, which realise the unprecedented global pandemic may call for new arrangements to relieve financial stress on Australians.
“Banks and credit bureaus are working together to ensure that reporting is fair to customers and takes COVID-19 into account,” the ABA said.
Business Insider Australia understands many different organisations, including banks, agencies and credit associations, have been in discussions over recent weeks and are nearing an agreement.
Until then, Australians have no choice but to wait for a decision to be made.
Are you having trouble getting financial assistance at the moment? Get in touch at [email protected]
- Many Australian banks are offering to freeze mortgages during the coronavirus crisis. Here’s how it works.
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