Australian borrowers who are struggling or might fall into financial hardship as the COVID-19 outbreak takes its toll should ensure that their credit ratings stay in check.
John Dickinson, managing director at DebtX Mediation Services, said it is crucial for those who will be financially impacted to speak with their lenders to avoid defaults on their credit files.
"The key to protecting your credit file is communication with the lender. I understand this can be a very hard thing to do. It's common to be worried about making this all-important call as many people expect the lender will be aggressive and unhelpful, but they are usually the complete opposite, especially now," he said in a think piece in Mortgage Professional Australia.
Dickinson said even with the current conditions, most cases of unpaid dues for over sixty days might still be recorded as a default on a borrower's credit file. This default will stay in the borrowers’ files for up to five years, which could potentially derail their chances of getting approved for a loan.
Loan providers use credit scores to assess the credibility of applicants as borrowers. Dickinson said many lenders have initial processes that are fully automated, which could mean automatic rejection for borrowers with a default in their credit reports.
"If you think getting approved for finance is tough now, just try and get a loan approved when there's a default on your credit file. Even in the current market, it can be next to impossible, at least at reasonable interest rates," Dickinson said.
Dickinson said borrowers need to talk with their lenders to get proper assistance. This will prevent defaults as they are difficult to remove from the record once posted.
"While the borrower continues to communicate with the creditor, and they are working towards the resolution of the problem account, it is very unlikely a default will be listed," he said.
For borrowers who think they might fall into financial hardship over the next few months, it is important to reach out to their lenders early to ensure that their credit files are protected.
"If the emotion is too close to home for you to liaise with the credit provider yourself, then engage a professional to do it for you. Be strong, be proactive and you will get through this," he said.
Credit score is an important part of applying for a mortgage loan. Check this guide to see some strategies to improve your credit rating.