Geri Cremin

According to new research by consumer education website, CreditSmart, more than 40% of surveyed Australians said they would rely on credit to help them with their festive budget blowout this year.

Asked whether they are likely to spend more than they budgeted for this year, 1 in 3 expect their additional expenses to be  less than $500, another 25% expect their extra expenses to be much greater – in the range of $500 – $2,500.

The poll also asked Australians what they plan to spend the most money on. Half said they would spend the most on gifts as their number one holiday-related expenditure, followed by food and drinks (44%), entertainment (29%), and shopping for themselves (26%).

Commenting on the findings, Geri Cremin, Credit Reporting Expert at CreditSmart said: “With Christmas fast approaching, many of us get tempted to spoil and reward ourselves, our friends and families for successfully getting through the hustle and bustle of a busy year.

“To add to this, peer pressure from social media, online promotions and easy availability of credit have led consumers to spend more each year than they would normally do, especially during the festive season, which may hurt their hip pocket.

“While many Australian consumers are looking to rely on credit to meet their extra expenses, it’s important to know that how you handle your debts over the Christmas period will be reflected in your credit report.

“Lenders will look at your credit report when you apply for credit or a loan, which means if you have a debt hangover from Christmas, it can affect you getting credit for some time,” she noted.

Most popular credit choices

According to CreditSmart research, credit cards remain the most popular choice for consumers to make their purchases, with over 40% of people ranking it as the number one form of credit they would use this Christmas.

Buy Now Pay Later followed as the second most popular choice, with 20% of people saying they would use these services this Christmas if they needed credit.

“There are lots of promotional credit offers made available in the lead up to Christmas, from extended interest-free periods on credit cards, to retailers and brands offering special Buy Now Pay Later discounts, to allow consumers to buy more,” Ms Cremin said.

“Consumers must remember that Buy Now Pay Later is a credit product just like any other loan and will take repayments from your regular bank accounts that you use to pay other utility bills such as rent, electricity and groceries. Similar with credit cards, the interest-free periods will end and start becoming more expensive to use if they’re not being paid off in full at the end of each month.

“These methods of credit can affect your ability to get additional credit for big ticket purchases such as property or car, if you are not being smart about paying them off. Having a clear idea on incomings and outgoings will at least allow you to stay on top of when your scheduled payments are,” she added.

Implications on credit health

Despite the successful rollout of comprehensive credit reporting in Australia – where banks have access to more information about consumer debts and repayments – consumers are still largely unaware of how it affects them.

The survey found that while 1 in 3 Australians have checked their credit report / score in the last 12 months, less than 10% have checked it recently in anticipation of Christmas expenses.

Worryingly, nearly half of all Australians still claim to have never checked their credit report / score, with 1 in 10 saying they don’t know what it means.

“As a first step, you must get a free copy of your credit report from a credit reporting body to make sure you can assess your current situation and check for any inconsistencies.”

Ms Cremin further added, “At busy times of the year like Christmas, it can also be easy to let bill payments slide. Paying on time is essential to managing your debt responsibly and keeping your credit health in shape.

“Christmas is a wonderful time of celebration but too many people succumb to the pressure to overspend at this time of year. So, plan ahead, spend responsibly and stay on top of your bills to avoid a New Year debt hangover,” she concluded.

The post Four in ten Aussies expecting to use credit to pay for their Christmas budget blowout appeared first on AdviserVoice.

The CreditSmart survey found that nearly three quarters of Australians assume their credit score is included in their credit report. One in five mistakenly believe that marital status, income, insurance claims and even traffic fines form part of their credit report.

Commenting on the findings, Geri Cremin, Credit Reporting Expert at CreditSmart, said: “If you are applying for a credit card, a personal loan or even applying to change your mobile phone provider, your credit report can make or break your application.

Your credit report is a snapshot of your credit history and current credit health – so lenders do look at your credit report, and you should too.”

“Your credit report is a way for lenders to see how you handle the credit you currently have and assess whether the credit you’re applying for is right for you. Better still, a good credit report might open the door to better deals.”

Who’s accessing your credit report?

How credit reports are used is also unclear to many Australians. The majority of consumers know their credit report can be checked when they apply for a home loan, however:

• Less than 50% are aware that it can also be checked when taking out a new mobile phone contract or opening a new gas or electricity account.
• Four in ten also wrongly believe their credit report is checked when applying to rent a property.
• 30% believe that their credit report is checked when they take out home insurance.
• 13% also think that a future employer checks their credit report when they apply for a job.

“By law, your credit report can only be accessed by others in limited circumstances. For example, your credit report can’t be accessed by a real estate agent when you apply to rent a house, an insurer when you apply for car or home insurance or by a potential employer when you apply for a job,” added Ms Cremin.

Aussies love credit, but feel it’s getting harder to access

CreditSmart’s research showed that Australians are enthusiastic users of credit, with three quarters (76%) currently using some form of credit product.

Credit cards (56%), home loans (29%), vehicle finance (12%), Buy Now Pay Later services (12%) and personal loans (12%) were the most popular types of products used by Australian consumers who responded to the CreditSmart survey.

The survey also found that four in 10 Australians think it is harder to get credit now than it was 12 months ago. They say the reasons are:

• lenders doing tighter credit checks (57%)
• tougher regulation around credit (54%) and
• lenders looking at bank statements and daily expenses more closely (41%)
• declining property market (22%)

“As Australians feel credit is getting harder to access, it’s important to take charge of your individual credit health. A great first step is to check your credit report – understand what’s on it and get on top of your monthly repayments. Lenders look to your credit health to determine your attractiveness as a customer, so it is important to know where your credit health stands,” Ms Cremin said.

“We recommend checking your credit report annually and really treat it as an asset that will help you access the right credit if and when you need it.”

So, what is included in my credit report?

At a minimum, your credit report will include identifying information about you, such as your name, birth date, address and employment history.

More importantly, it includes:

• A list of any applications you’ve made for credit over the last five years – regardless of whether your application was approved or not. This information is listed as an “enquiry” by the credit provider you applied to and it includes the type of credit you applied for.
• A breakdown of your current credit accounts such as your home loan or credit card.
• Up to 24 months of repayment history – which shows your monthly repayment behaviour on financial credit accounts (phone or utility companies do not report repayment history, so your telco and utility repayments won’t be on your credit report).
• Any defaults listed by a credit provider on financial loans as well as telco and utility accounts. A default can occur if you miss your payment of at least $150 by at least 60 days. A default stays on your credit report for 5 years.

According to CreditSmart, the following types of things are NOT in your report:

• religious or philosophical beliefs
• health information
• genetic information
• racial or ethnic origins
• political opinions
• sexual orientation
• membership of professional associations or trade unions
• criminal record
• marital status
• annual income
• insurance claims
• traffic fines

Key Points:

• Three quarters of Australians (76%) currently have some form of credit product
• Four in 10 Australians believe it’s getting harder to get credit
• One in five consumers wrongly believe that marital status, annual income, insurance claims, and traffic fines form part of their credit report
• 70% believe their credit score is included in their credit report

About the study

The study was conducted online between 27-29 March 2019, with a sample size of 1,037 Australians aged 18 years and older throughout Australia.

The post Confusion around credit reports rife among Aussie consumers appeared first on AdviserVoice.

Geri Cremin

Australian millennials have a lower understanding of credit than older generations, according to research from consumer education website, CreditSmart. A huge 44% of millennials are unsure of the difference between a credit score and a credit report, and over half are unaware of what a lender looks for in a credit report.

The study revealed that only 1 in 5 millennials said they were confident about their understanding of what a credit score is, and a further 75% were unaware that they can access their credit report for free.

Commenting on the findings, Geri Cremin, Credit Reporting Expert at the Australian Retail Credit Association (ARCA), which founded CreditSmart, said: “Millennials are at a point where they may be looking to make their first milestone purchase, like their first car or first home. It is really important for them to get on top of their credit health so when the time is right, they’re in a good position to make the big-ticket purchases.”

The research also flagged that nearly a quarter of millennials think their credit report can be checked when applying for a new job.

“There are restrictions on who can access your consumer credit report. Real estate agents and employers cannot check your consumer credit report,” explained Ms Cremin.

An analysis* by credit score provider and ARCA member, CreditSavvy.com.au, found that millennials (aged 25-34) have the lowest average credit score (624) when compared with GenX (aged 45-54) at 659 and Baby Boomers (55+) at the highest level (737).

“While younger generations generally have lower scores, this doesn’t necessarily mean they’re worse at managing credit. The lower scores are often the result of young people lacking a detailed history with credit or can be linked to the types of credit younger people take out like credit cards and personal loans,” said Leo Hillary, Product Director at CreditSavvy.com.au.

“The good news is that with comprehensive credit reporting, younger Australians will have more capacity to demonstrate their credit worthiness simply by making their loan repayments on time each month.”

More millennials take action

A quarter of millennials (24%) have either checked their credit report themselves or have had it checked for credit applications in the past 12 months – more than GenX (20%) and Baby Boomers (10%). This is mainly for credit card and mobile phone applications.

Despite having low awareness of their credit health, a third of millennials are seeking advice about debt and credit (32%).  Among those who sought advice, nearly a quarter (24%) have done so via an online service of some sort, followed by searching on Google (17%), highlighting heavy reliance on online sources for seeking answers to their questions.

“It’s encouraging to see that although millennials have low awareness of credit, they are keen to learn and improve their own credit health,” said Ms Cremin.

How can millennials improve their credit health?

For millennials looking to build their credit score, Ms Cremin recommends starting with the basics.

“You’ll start creating credit history when you apply for a credit card, a post-paid phone or utility account (as long as it’s in your name). But it’s important to make sure you only take out credit that you can afford as not paying will have a lasting effect on your credit health,” she said.

Ms Cremin also recommends focusing on making timely payments. “Making repayments on time is the best way to build your credit health. Even if it’s a small loan or small credit card, as long as you make repayments on time, you’ll start building a strong repayment history, which shows potential lenders that you can manage credit responsibly. That healthy credit history will be an asset when you want a larger loan, for example a car or home loan, further down the track.

“A default stays on your credit report for five years but even a late payment can stay on your credit report for two years. The more late payments on your credit report, the more your credit score will drop.

“An easy way to stay on top of your repayments is to talk to your credit provider about setting up automated payment or direct debit. Putting your repayments on auto-pilot might help when you’re away on holiday, or busy at work, and would otherwise forget to stay on top of repayments.

“If you’re struggling with repayments, talk to your credit provider about how they can help. The earlier you discuss financial difficulty, the better,” added Ms Cremin.

The research, undertaken by YouGov Galaxy, was done ahead of important changes to Australia’s credit reporting system, which will see lenders move to comprehensive credit reporting (CCR).

By the end of September, many lenders including the Big Four Banks started sharing comprehensive credit reporting information to ensure a transparent, and fairer credit lending system.

For information on how to optimise your credit health, go to the CreditSmart website, set up by credit experts to help you understand how recent credit reporting reforms affect you.

——

*Average credit score data is supplied based on CreditSavvy.com.au’s member base and does not reflect the entire Australian population. CreditSavvy.com.au uses Experian’s credit score which ranges between 0 – 1000.

The post Millennials score low when it comes to credit awareness appeared first on AdviserVoice.