Changes to hardship reporting might affect your credit score

From July 1, 2022, changes to credit reporting laws that impact how hardship is reported took effect.

Previously, your credit report might have shown you had missed repayments during the arrangement but would not have necessarily identified that this was due to financial hardship. This has now changed.

Before covering how hardship is treated, we recommend you review our debt information page, which covers credit scores and credit reports. Keep in mind that a credit report and your credit score are two different things.

And if you’re having trouble with repaying debt and you’re worried how it might look on your credit report, help is available. Way Forward is a registered charity that works with people who are in medium to long term financial difficulty.

How does hardship information impact my credit score?

A credit score is a generated number based on information that credit reporting bodies have access to. Individual elements of your file can add or subtract from that number, the higher the score the lower your perceived credit risk and the easier it is to get further credit.

The elements that make up your credit score are always kept discreet by organisations that calculate them; however, they tend to revolve around a few basic themes:

• Stability of your credit repayments – are your payments on time?
• Stability of residence – how often have you moved?
• Stability of occupation – how often have you change jobs?

There are many other contributing factors but as you can see stability and predictability are key.

So how does hardship information impact on your credit score? That’s simple, it can’t.

These credit reporting bodies are not allowed to use your hardship information in the calculation of their credit score.

However, this is not the complete picture. These credit reporting bodies can use your repayment history information in how they calculate a score.

This means, if you make a hardship arrangement and you don’t keep up with that arrangement, it can impact on your score.

If you are experiencing financial difficulty and are getting hardship support from your lender, we recommend that you keep to the arrangement, if you can.

Keeping to your arrangement means your score won’t be impacted.

If you are struggling to meet your repayments, it’s important to speak to your lender early to work out an alternative.

How does hardship information impact my credit report?

A credit report is a detailed record of your credit information. This provides an outline of your credit health by showing any enquiries that were made when you applied for credit and your debts with lenders, including the Repayment History Information (RHI).

Lenders use this report to see if there are any current or previous problems that should be considered if you applied for further credit.

So how does financial hardship impact my credit report?

A credit report does not include reasons for your hardship arrangements or any other specific details. However, it will show up in few ways:

1. You have an approved temporary hardship arrangement with your lender
2. You have an approved long term hardship arrangement with your lender
3. You don’t have a hardship arrangement with your lender

It is important to note that the payments under (1) and (2) will be lower than ‘normal’ (previously required repayment amount) payments.

i.e., if you can’t make your normal payments (as per 3), then the arrangements under (1) and (2) give you an opportunity to make lower payments and still show as up to date.