In the news this week, we are told that the 16 to 25 age group are getting way over their heads with debt in relation to income. A News Limited story yesterday reveals that this age group carry a much higher proportion of debt to income. This is a worrying trend – and one that can be prevented by reaching out and educating young people on the ins and outs of credit. If you are in this age group – we give you the low-down on some important things to know which you may not have been told about credit in Australia. We show you why you don’t want to get in too much debt, and how being in control of some simple things can save you and your credit file well into your future.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repair and www.fixmybadcredit.com.au.
The News Limited story “Young adults drowning in debt” featured Roy Morgan data showing one in three in the 16-25 age group carries more than $2500 forward in credit card debt each month and those aged 21 to 25 had an average income of $791 a week.
The data also found 215,000 Australians aged 18-24 had a personal loan for a car and the average amount owed was $11,010.
Why should you be concerned about too much debt?
If you have debt which you are struggling to pay back right now – this can affect you this year, next year and for years to come. If you have ever taken out a mobile phone plan, a credit card or loan, you will have a credit file in your name. If you fail to pay your credit back on time, you will probably have notations put against your name by your Credit Provider – eg Telstra, Westpac, Energex etc.
If you are more than five days late paying back your credit cards or personal loans – you will have that noted on your credit file as repayment history information. If you are more than 60 days late in paying ANY credit – from mobile phone bills to electricity accounts and loans, you will be issued with a default or other negative listing on your credit file.
If you are issued with a default, this will have very serious consequences for years to come. You won’t be able to get credit at normal interest rates for between 5 and 7 years! You will most likely be refused major credit, and if you aren’t you will have to pay thousands more in interest. This is not the best area to go ‘alternative’ in. You want the most affordable interest rates – not paying in some cases tens of thousands more in interest just because you didn’t pay your mobile phone bill 3 years before.
Think to yourself…what do you want to be doing in two or even five years? Maybe own a house, a car, or travel overseas? Having a default against your name can spoil all of those dreams.
Young people in default
Credit reporting agency Veda Advantage recently released some of their data from the last three years, which showed that Gen Y holds 60% share of all credit defaults. From telco defaults through to loan defaults – Gen Y tops the list in every category. Find out more.
AMP financial planner Dianne Charman told News Ltd access to credit has been made much easier for the younger generations compared with a few decades ago, which has allowed them to run into debt more easily.
“Access to credit a few decades ago just wasn’t as easy as it is now,” she says.
“We didn’t have mobile phone access to accounts that you can run up bills on, so our kids today are faced with decisions which can rack up bills more easily, and credit cards and personal loans are far more accessible than what they have been previously.”
What you need to know
Here are our top five things you need to know to avoid bad credit.
1. Be careful with all of your credit.
It doesn’t have to be a big account to have an impact on you. Accounts which for as little as $100 which go unpaid can see you defaulted and banned from mainstream credit for five years. Likewise, any credit account can see you lumbered with a default if it goes unpaid – this goes for mobile phone accounts, electricity accounts as well as credit cards and personal loans. Paying on time, every time is your first line of defence against bad credit.
2. If you can’t pay for it – let your Credit Provider know.
If you run into money troubles – the WORST thing you can do is pretend like it’s not happening. If you lose your job, or run into temporary financial difficulty – the smart thing to do is contact your Credit Provider to work out alternative arrangements to bridge the gap. Asking for a financial hardship variation may save your credit file even if you are struggling to make payments. MoneySmart’s senior executive Robert Drake also recommends contacting a financial counsellor to work out a plan.
“The earlier you tackle the problem the better, whether it’s by getting in touch with the lender and telling them you have some problems you’re dealing with or by talking to a financial counsellor,” he told News Ltd.
3. Tie up all financial loose ends when you move or go overseas
A really common way that young people can find themselves in trouble with their credit file – sometimes without even knowing it – is when they move house or go overseas for extended periods. Typically an account gets sent to your previous address and remains unpaid and then listed as such on your credit file. This can occur frequently with electricity accounts. If you move around a lot, consider a P.O. Box for all your mail or alternatively a parent’s address. Likewise, make sure you contact your Credit Providers to inform them of your new address when you move – or if going overseas, have someone keep an eye on your mail. Parents are good for this!
4. Check your credit statements and order a credit report.
Many people of all age groups have the mistaken view that if something wasn’t right with their credit accounts or something was listed incorrectly on their credit file – that someone would inform them. This is seldom the case. It is your responsibility to check that your accounts are running right by checking your statements when they come in. Review each phone bill. Query anything you’re not sure of.
In addition to this, you should also regularly check what is being seen by lenders by ordering a copy of your credit file. It is free once every year from Australia’s credit reporting agencies – and you should order it annually to make sure everything reads as it should.
Young people need to insist on account accuracy and credit reporting accuracy. With defaults almost seemingly a ‘dime a dozen’ in the 16-25 age group, it is important accuracy does not take a back seat and see defaults pile up on Australian credit reports without an understanding of what constitutes a lawful listing.
Order a free credit report.
5. You have a right to correct mistakes
Every Australian needs to know that mistakes can happen on credit reports. Likewise, bad credit can be listed on credit files unknowingly.
A credit listing that you feel is inaccurate or unfair should be tested against the appropriate legislation for its validity and its accuracy. The process of dispute is not easy, but Creditors should be called to account for any inconsistencies. You should also know Creditors have a legal obligation to remove a listing which was placed incorrectly.
Changes for the better are coming in Australian credit reporting particularly around correction of credit reporting mistakes, but education is key for every credit active individual to make best use of these changes, aware of the action they need to take to ensure their rights are upheld.
Where to go for money help
AMP’s Charman suggests younger Australians find themselves a money mentor to help them when facing important financial decisions, such as parents, aunts or uncles. This is a great idea. Having someone to bounce decisions off can really improve your chances of making the right decisions for you not just for now, but for later as well.
Also go to the MoneySmart Rookie website for under 25’s, and get help with a range of financial decisions including handling credit and debt, getting a car, starting work, moving out of home, understanding mobile phone deals and plans and online transactions. You can also visit savingsguide.com.au – a great advice centre and blog for all-things money which is focused not only on saving money – but also on repaying debt. Their motto is ‘it’s not how much you earn, it’s how smart you are with what you have’.
As a young person, getting to know your rights around credit and your obligations will empower you well into the future, and set up habits which will see you in good stead for your whole financial future. You can find more information on your credit file or disputing a credit listing on our website www.mycra.com.au or by subscribing to our blog www.mycra.com.au/blog.
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