In the wake of Australia’s devastating bushfires, a spotlight has fallen on the aftermath natural disasters can silently wreak on people’s credit rating and financial wellbeing, Paul Walshe, CEO, Fair Go Finance explains the steps you can take to minimise the impact and what lenders can do to help those affected.
The impact of a disaster, especially if you are not prepared, can prove to be a recipe for short-term financial hardship and have long-term consequences limiting your access to finance in the future.
If you have been affected or could be, a few key steps will help protect your credit:
- Be prepared – have a plan (who, what, when).
- Contact your credit provider(s) and flag your hardship as soon as possible.
- Restructure your financial repayments to be more manageable during this time.
With the broad adoption of Comprehensive Credit Reporting (CCR) a sudden interruption to regular income and personal cashflow due to a natural or personal disaster can drag your credit rating down. CCR requires the repayment performance by individuals on credit facilities (e.g. credit cards, car loans and mortgages) is reported to credit bureaus and as a result, arrears drags your score down.
It’s not surprising repayments are not possible or are deprioritised following “…the destruction of, or severe damage to, the home of the individual…”, and this is why ‘Financial Hardship’ legislation was implemented by the Government and is a requirement that credit providers must follow as part of their licencing conditions.
Importantly, once you have been recognised as being in ‘Financial Hardship’ repayment information is not shared with the credit bureaus, so your score should be maintained until you come out of hardship and resume normal repayments.
(Note, utility providers do not report this repayment information, but they do have hardship processes people can access).
So, with our recent bushfires in mind, what can you do before and after to be disaster-ready, and how might lenders be able to help?
- What to prepare financially now in the event of a future disaster
- Try and maintain an emergency fund if you can, even if it’s a few hundred dollars. Saving takes time, but it will help insulate you from financial shocks.
- Start today by completing a checklist which details all your current utility and credit providers (such as gas, water, electricity, phone, internet, loans, credit cards etc.) and store this “in the cloud” (e.g. email it to your partner, parent or yourself). Include the account reference number, contact details for each provider and typical due dates so you can identify if a bill has gone missing. Review your bank statements and add any other commitments you have so all your ongoing expenses are accounted for.
- Nominate a trusted third-party to have access to your accounts so in the event you are injured/unwell or unable to manage your affairs personally, they can call the providers and discuss the options available. Give your third-party a copy of your checklist, remembering to update it whenever you change providers.
- Arrange for online bills rather than paper-based ones in case your property is destroyed, and you must relocate.
- If suitable, have direct debits in place for all bills to ensure they get paid, even if you miss receiving the bill. Using a credit card responsibly and having credit available on it will mean some bills will automatically be looked after.*
- In the aftermath of a disaster, what to immediately do to protect your credit score and future financial wellbeing
- Given everyone’s circumstances are different, contact your creditors as soon as possible to inform them of the disaster and of its impact on you.
- From this they discuss the options available to you for the time between the event and when you expect to be able to return to a more normal situation, so you can resume your repayments in full or as agreed. If you’re incapacitated, your third-party nominee can action this on your behalf.
- If needed, apply for disaster relief from the Government and check what other resources through the Government you may be entitled to.*
- Obtain a copy of your credit report. In the event your credit score does get negatively impacted soon after the disaster, you can provide this copy as evidence that it was the disaster fallout, and not previous financial mismanagement that damaged your credit score.
- Prepare a post-disaster budget. It’s essential you conserve cash as best you can until your life stabilises.
- What lenders/credit providers can do to support you while you recover
- For natural disasters, lenders can obtain a list of postcode affected areas from Australia Post. This enables them to search their customer database and proactively reach out (SMS, emails etc.) to those potentially impacted. It’s extremely important you still contact your lenders/providers as soon as you’re able to, so you can make them aware of your exact situation/location and they can assist accordingly.
- Responsible lenders and credit providers should have defined hardship processes and procedures in place to work with you during this difficult time, and to help you protect your credit status.
As we’ve recently seen, natural disasters hit with little warning. Being prepared as best you can and planning ahead not only positions you to recover, it will help protect your financial wellbeing and credit score, preventing a short-term event from having long-term consequences.