The aftermath of a disaster, especially if you are not prepared, can be a recipe for short-term fi nancial hardship and have longterm consequences that limit your access to finance in the future.
If you have been affected, or could be, a few key steps will help protect your credit:
• Be prepared – have a plan (who, what, when).
• Contact your credit provider(s) and flag your hardship as soon as possible.
• Restructure your financial repayments to be more manageable during this time.
With the broad adoption of comprehensive credit reporting (CCR), a sudden interruption to regular income and personal cash flow due to a natural or personal disaster can drag your credit rating down. CCR requires that the repayment performance by individuals with credit facilities (eg credit cards, car loans and mortgages) is reported to credit bureaus and, as a result, arrears drag your score down.
It’s not surprising that repayments are not possible or are deprioritised following what the financial hardship legislation describes as “the destruction of, or severe damage to, the home of the individual”, and this is why the legislation was implemented by the government, which credit providers must follow as part of their licensing conditions.
Importantly, once you have been recognised as being in ‘financial hardship’, repayment information is not shared with the credit bureaus, so your score should be maintained until you come out of hardship and resume normal repayments. Note that utility providers do not report this repayment information, but they do have hardship processes people can access
So, with our recent bushfires in mind, what can you do before and after to be disasterready, and how might lenders be able to help?
How to prepare financially
• Try to maintain an emergency fund if you can, even if it’s a few hundred dollars. Saving takes time but will help insulate you from financial shocks.
• Start today by completing a checklist of all your utility and credit providers and store this “in the cloud” (eg email it to your partner, parent or yourself). Include the account reference number, contact details for each provider and typical due dates so you can identify if a bill has gone missing.
• Nominate a trusted third party to have access to your accounts so in the event you are unable to manage your affairs personally they can call the providers and discuss the options available. Give your third party a copy of your checklist, remembering to update it whenever you change providers.
• Arrange for online bills rather than paperbased ones in case your property is destroyed and you must relocate.
• If it suits you, have direct debits in place for all bills to ensure they get paid, even if you miss receiving the bill. Using a credit card responsibly and having credit available on it will mean some bills will automatically be looked after
What to do right after a disaster
• Given that everyone’s circumstances are different, contact your creditors as soon as possible to inform them of the disaster and its impact on you. They will discuss options available to you for the time between the event and when you expect to be able to return to a more normal situation, so you can resume your repayments in full or as agreed.
• If needed, apply for disaster relief from the government and check what other government resources you may be entitled to.
• Obtain a copy of your credit report. If your credit score is negatively impacted soon after the disaster, you can provide this copy as evidence that it was the disaster fallout and not previous financial mismanagement that damaged your credit score.
• Prepare a post-disaster budget. It’s essential you conserve cash as best you can until your life stabilises.
Support from lenders/credit providers
• In the event of a natural disaster, lenders can obtain a list of postcodes of affected areas from Australia Post. This enables them to search their customer database and proactively reach out to those potentially impacted. But it’s still extremely important that you contact your lenders/providers as soon as you’re able to.
• Responsible lenders and credit providers should have defined hardship processes and procedures in place to work with you and help protect your credit status.
As we’ve seen recently, natural disasters hit with little warning. Planning ahead not only positions you to recover but will help protect your fi nancial wellbeing and credit score, preventing a short-term event from having long-term consequences.
Paul Walshe is the CEO of Fair Go Finance, an online lender that provides credit for those who aren’t getting a fair deal.