Financial Hardship Assistance & Credit Reporting

There are many reasons that you may be unable to meet your payment repayments for loans and other debts. Some of the more common examples of Financial hardship causes include:

• An injury that makes you unable to work.
• Increases to your everyday expenses
• A layoff or other loss of income
• A natural disaster.
• The death of a family member
• Divorce.
• Increase in mortgage interest

A financial hardship arrangement is an agreement between a customer and their lender to adjust the customer’s loan repayment obligations because something has happened which has an impact on their ability to repay. A payment deferral requested by a customer because of a natural disaster is an example of when this might happen, but other circumstances such as being unable to meet regular payments because of illness or relationship breakdown and agreeing to a period of smaller payments might also lead to such an outcome.

A financial hardship arrangement is usually for a short period of time, e.g. reduced payments for a couple of months. However, in some cases, it can be longer, e.g. an extension of the remaining term of the loan to permanently reduce the monthly payments.

If you are finding it difficult to make repayments on your credit accounts or have experienced an unexpected change to your circumstances that might impact your ability to make your repayments, you should contact your lender about hardship assistance as soon as possible.

Lenders have well-established programs to assist you if you are experiencing financial difficulty. Remember that financial hardship can affect anyone, and lenders have experience helping their customers to get back on track. Your lender will discuss arrangement options with you, considering:

• the type of loan or credit you have
• the reasons why you are struggling to make repayments
• whether those reasons are likely to be short or long-term.

It is important to work with your lender to find a solution. Keep in mind that your lender is not required to agree to a financial hardship arrangement. It will depend on their assessment of your financial circumstances and why your repayments are overdue.

Advice and assistance with financial difficulties

• If you are experiencing financial troubles, the National Debt Helpline offers a free, independent, and confidential service.
• ASIC’s MoneySmart website also contains a list of free counselling services.
• Credit Smart provides free, unbiased information on consumer credit 

Previously, your credit report contained information about your repayment history for credit accounts like credit cards, home loans, personal loans and car loans, however it did not contain information specifically about financial hardship arrangements. From 1 July 2022, information about financial hardship arrangements are included in a credit report for those types of credit accounts. The credit report can show that a financial hardship arrangement has been entered into for the credit account, however it will not include the reason for the hardship arrangement, nor the details of the arrangement.

The recent changes to reporting of financial hardship arrangements do not apply to most buy-now-pay-later products. If you are talking to your lender about a financial hardship arrangement for a buy-now-pay-later product, ask the lender how this will be shown on your credit report.

Your credit report can include your repayment history for credit accounts like credit cards, home loans, personal loans and car loans. During a financial hardship arrangement, your repayment history will show whether you have met the requirements of the financial hardship arrangement (instead of your usual payment obligations).

For example, if your lender agrees to accept $500 payments per month during a financial hardship arrangement instead of the usual $1000, your repayment history will say that you met your payment obligations for a month if you pay that $500 on time. If your lender has agreed that no payments need to be made during the arrangement, your repayment history will also show that you have met your payment obligations.

Your credit report will also show that those payment obligations have been impacted by a financial hardship arrangement. This will be shown by a letter code of ‘A’ or ‘V’ (depending on the type of arrangement) that will go next to your repayment history. However, your credit report will not include the reason for the hardship arrangement, or the details of the arrangement.

The changes to report financial hardship arrangements will not apply to most buy-now-pay-later products. If you are talking to your lender about a financial hardship arrangement for a buy-now-pay-later product, ask the lender how this will be shown on your credit report.

The financial hardship arrangement will be shown as a simple letter code (‘A’ or ‘V’) next to your repayment history.

There are two types of financial hardship arrangements that are indicated by two different letter codes:

• ‘A’, which refers to a temporary financial hardship arrangement. This is a type of short-term relief or deferral of credit obligations.
• ‘V’, which refers to a variation financial hardship arrangement. This is a permanent variation to the terms of a credit agreement, such as a change to the repayment obligations or an extension of the term of the loan.

Repayment history is shown as a number that reflects whether you are up to date with your payments and, if not, for how long you haven’t been. A code of ‘0’ shows that you are up to date (although this is sometimes shown as a tick). If you do not make the payments (if any) agreed to as part of your financial hardship arrangement, then your repayment history will reflect how many months you are overdue (a number between 1 – 6, but if you are more than 6 months overdue, this will be shown as ‘X’).

So, if you and your lender agree to a temporary financial hardship arrangement where you are required to make reduced payments of $500 per month (instead of the ordinary $1000 per month), your credit report will show ‘0’ (or a tick) as your repayment history - provided you make the $500 on time - and your repayment history will include an ‘A’ alongside the ‘0’ (or tick).  Other credit providers, if permitted to look at your credit report, will see that you’ve met your payment obligation for that month and that the payment obligation was affected by a financial hardship arrangement.

If you don’t make the $500 payment on time, your repayment history will show the payment as missed (i.e. ‘1’ and include an ‘A’).

Importantly, your credit report will not include the reason for the arrangement. 

Financial hardship information reflects your current repayment obligations with a credit provider. It gives other credit providers a more complete picture of your repayment obligations without intruding into the reason for the financial hardship arrangement. They can see you’re experiencing hardship and may decide to extend credit to help you meet your repayment obligations. If they want to know the reason for arrangement, they must contact you and then it’s your call if you tell them.

From 1 July 2022, under the Privacy Act 1988, a credit provider must tell a credit reporting body that they have financial hardship arrangement with an individual and the type of arrangement, temporary or permanent. And the credit reporting body must show this arrangement on the individual’s credit report.

Before 1 July 2022, an individual could have a financial hardship agreement with their credit provider but there was no way to show this arrangement on their credit report.

Provided they have a valid reason to check your credit report, a bank, credit union, or licenced finance company may be able to see whether you have been in a financial hardship arrangement. If you use a broker to help you find a loan and give them consent to check your credit report, they will also see whether you have been in a financial hardship arrangement. Information about financial hardship arrangements only stays on your credit report for 12 months. If you apply for credit inside that period, your credit report may prompt a lender to ask a few more questions to understand whether you are still experiencing hardship and if you can afford the loan. 

When a credit provider enters a financial hardship arrangement with you, they must tell you verbally or in writing, as soon as possible, that they’ll disclose financial hardship information about you to a credit reporting body during the life of the arrangement. The credit reporting body is the same one your credit provider has been disclosing your credit information to since the start of your contract with them.

Financial hardship information – for both temporary or variation arrangements – only stay on your credit report for 12 months. After that time, it is no longer possible to tell from the credit report that a financial hardship arrangement was in place.

A financial hardship arrangement is usually sought by a people who are experiencing financial hardship (e.g. from job loss or some other cause), which is making it more likely that they will miss their ordinary payments.

If you are struggling to make your payments, it is important to recognise that a history of repeated missed payments can make it harder to get credit in the future and, if the missed payments continue, could even result in a default being recorded on your credit report. A financial hardship arrangement will help you to avoid having missed payments recorded because your repayment history will reflect whether you’ve made the reduced payments required under the arrangement (rather than the higher payments that are normally required). Plus, a lender cannot report a default during a financial hardship arrangement.

Your credit report will also show that your repayment obligations were affected by a financial hardship arrangement. This shows other lenders that, while you are experiencing financial hardship, you have taken steps to take control of your financial situation and are working with your lender to get back on your feet. 

Under the law, financial hardship information cannot be used by a credit reporting body to calculate a credit score.