It’s no secret… More Australians are feeling the pinch.
ASIC’s June 2024 release reported nearly half of adults with debt (47%) struggled to make repayments in the previous 12 months. This was a reflection of the ongoing cost of living pressures, reduced incomes and unexpected expenses faced by many Australians.
Despite this widespread struggle, 30% of those in difficulty say they would not seek a hardship arrangement from their lender. Instead, 42% would rather sell personal belongings and 40% would pursue a second job before applying for formal financial hardship assistance.
More recently a growing number of mortgage holders are seeking formal financial hardship arrangements with their banks or lenders.
But what does entering financial hardship mean for your ability to apply for a loan or credit card in the 6 to 12 months that follow?
Let’s break it down, bust some myths and arm you with the facts.
What is a financial hardship arrangement?
A financial hardship arrangement is a formal agreement with your lender to temporarily change your loan repayments. Think reduced payments, pauses or extensions because you’re currently unable to meet your usual obligations due to circumstances such as job loss, illness, family breakdown, unexpected expenses or other reasons. It’s designed to help you land back on your feet without defaulting.
How does financial hardship appear on your credit report?
Since July 2022, financial hardship information (FHI) is recorded on your credit report if you enter an arrangement with your lender. This information remains on your report for 12 months from the end of the hardship arrangement. During this period, any lender you apply to for new credit can see that you’ve been in hardship, but crucially, this information is not used to calculate your
credit score.
Does a hardship arrangement affect your credit score?
Here’s the good news! Simply entering a hardship arrangement does not affect your credit score. The law protects you here. Credit reporting agencies cannot use hardship information to lower your score. However, if you miss payments outside the terms of your new arrangement, those missed payments can and will impact your score. So sticking to the agreed plan is key.
Will lenders see that you’ve been in hardship?
Yes. If you apply for credit within 6 – 12 months of your hardship arrangement ending, lenders will see the FHI on your report. This doesn’t automatically disqualify you from obtaining new credit, but lenders may ask more questions about your current financial position and whether you’re still experiencing hardship. They want to be sure you’re back on solid ground before approving a new loan.
What are the practical effects of obtaining credit in the 6 – 12 months after hardship?
- Extra scrutiny
Lenders may request more documentation or ask about your current income, expenses and stability. - Cautious approval
Some lenders may be more conservative, offering lower credit limits or higher interest rates or may require a longer period of demonstrated financial stability. - No automatic rejection
You are not barred from applying for credit. Many lenders will consider your application on its merits, especially if you have maintained your new repayment plan. - After 12 months
The hardship flag is removed from your credit report and your application is assessed the same as anyone else’s assuming no other negative marks remain.
Is it better to ask for help or just miss payments?
Absolutely ask for help.
A formal hardship arrangement is far less damaging than missed or defaulted payments. Defaults can stay on your credit report for five years and significantly lower your score, making it much harder to access credit in the future.
By contrast, a hardship arrangement, if you stick to it, shows you’re proactive and responsible.
The emotional toll and why you shouldn’t go it alone
Financial hardship isn’t just about numbers. Aussies report stress, sleepless nights and even health impacts from money worries.
Yet two thirds of those who sought help from their lender felt supported and relieved afterwards.
Don’t let embarrassment or fear stop you from reaching out. Help is available and it’s your legal right.
Key takeaways
- Financial hardship arrangements appear on your credit report for 12 months but do not lower your credit score unless you miss payments under the new plan.
- Lenders can see hardship information and may ask more questions if you apply for credit within the 6 – 12 months window, but you are not automatically excluded from borrowing.
- After 12 months, the hardship note disappears provided you’ve maintained repayments.
- Acting early and communicating with us to work with your lender on your behalf is always better than missing payments or ignoring the problem.
- Seeking help is a sign of strength, not failure. And it’s the best way to protect your financial future. If you or someone you know is facing financial hardship, don’t wait until things spiral.
Just a heads up
If your repayments are paused or reduced under a hardship arrangement, you’ll still need to catch up on those missed or reduced payments over time. Taking the hardship path doesn’t mean those repayments disappear – they’ll simply be rescheduled at a later date.
Reach out to our finance team for guidance. You’ll be in good company and you’ll be taking the first step to being back on track.
Remember: Help starts with a question. Just ask!