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5 steps to safeguard your credit score when money is tight

·4-min read
woman on laptop
There are several ways to safeguard your credit score. (Source: Getty)

This is part two of Nicole Pedersen-McKinnon’s strategy to ‘safeguard your score’, for tighter economic times. Read part one: The surprising trap that is hurting your credit score.

Stretched and stressed? Then you need to take action to get through this painful economic patch and also to ensure credit score damage doesn’t affect you for years to come.

Here are the five steps to protect your credit score in tight times.

As we talked about in part one of this column yesterday, missing repayments is the very worst thing you can do.

If you miss a credit repayment by as few as 14 days, it stays on your record and pulls down your score for two years.

Read more from Nicole Pedersen-McKinnon:

If you miss any type of non-banking repayment by 90 days, it haunts you for a full five years.

So don’t.

Because, though it probably feels the opposite, you don’t have to go this alone.

Step 1: Ask for hardship

Much like at the outset of the coronavirus crisis, lenders are again extending leniency. Particularly if you have been affected by the extreme flooding this year.

All financial institutions must have dedicated hardship departments, which must advance you some kind of help.

Australian Banking Association CEO Anna Bligh said: “Banks have very experienced people available to provide bespoke and tailored packages to customers and offered on a case-by-case basis depending on customers’ individual circumstances.

“Don’t tough it out on your own, call your bank, they are ready to help.”

They might revise your repayment schedule. They might even temporarily suspend it while you get back on your financial feet.

Step 2: Agree and adhere to the hardship terms

This is important. And here’s why.

If the arrangement to which you and your lender agree qualifies, this will be noted as part of your “financial hardship information” on your credit report.

That change, which came in as of July 1 this year, means that your repayments will be marked, regardless, as ‘on time’ each and every month.

A ‘financial hardship’ designation will not factor into your credit score calculation and will disappear from your file itself after just one year. Or it will provided you honour the amended contract terms.

That sure beats two or five years, as above, of score suppression.

Step 3: Don’t apply for ordinary credit

Don’t fall into the trap of borrowing to try and dig yourself out of trouble. Each time you apply for credit, it goes on your credit file and drags down your credit score.

And, if you are refused, far more so.

Having said that, there is an amazing emergency money scheme offered by the good people at Good Shepherd Microfinance.

Low earners can access loans at no or low interest for things like household appliances, car repairs or education expenses.

Just don’t apply unless you are sure you meet the eligibility criteria - that would hurt your score more.

There is help at hand to access these loans too.

Step 4: Call the National Debt Helpline

The National Debt Helpline on 1800 007 007, is a tremendous free and independent serviced staffed by a network of financial counsellors around Australia.

They can not only assist you to get Good Shepherd loans that will get you over the financial survival line but also advocate for you with the financial hardship departments of all your creditors.

What’s more, in your behalf, they have priority status with Centrelink.

If you are struggling, don’t delay, call them today.

Step 5: Pay attention

There have also recently been extensive, important changes that make your credit report more transparent.

You can now access it for free every three months, direct from one of the three Australian credit reporting bureaux.

Or at least you can provided you haven’t received a copy within the past three months and if you meet one of two circumstances:

  1. You have been declined for credit in the past 90 days or

  2. You have asked the bureau for a correction on your credit report.

Because, yes, there may be mistakes on there that could adversely affect your financial life.

You can obtain your report from Equifax, Experian or Illion.

And you can learn more about what’s in your credit report, and how it feeds into your score, at Credit Smart.

Times are tight. You don’t want them to get tighter.

This is part two of Nicole Pedersen-McKinnon’s strategy to ‘safeguard your score’, for tighter economic times. Read part one: The surprising trap that is hurting your credit score.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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