Consumers putting new focus on credit repair

by Victoria Coster06 Nov 2020

Although the desire to repair credit was put aside by consumers in January as Australians battled bushfires, it has returned. Now more than ever, consumers are focusing their attention on how to secure a record interest rate – and having strong credit is one of the most effective ways to do this.

It is now harder to get first-tier lender approvals if you have even the tiniest blemish on a credit report, which means we are now seeing new types of enquiries.

Previously, Credit FIX Solutions’ core credit repair enquiries were for complex credit reports that needed a lot of work and primarily came from brokers, due to the B2B model we created six years ago. But times have changed, and consumers are coming directly to us with small telco defaults in an attempt to clear their credit records and get the best rates they can from the majors.

We have seen a dramatic increase in the number of consumer-facing queries in the third quarter of 2020. In particular, we have seen a rise in activity in Victoria and Queensland.

In 2019, Credit FIX Solutions assigned business development managers to markets outside of NSW, and our BDMs now operate in Victoria, Queensland and WA, which may have contributed to the increase in consumer-facing enquiries.

However, COVID-19 has also been a key contributor to the number of consumers seeking finance. In particular, the federal government’s HomeBuilder scheme, announced on 4 June (offering grants of $25,000 to build a new home, substantially renovate an existing home or a purchase a new/off-the-plan home), has led to a rise in finance applications and interest in credit repair.

The latest ABS figures for Lending to Households confirm the level of interest in borrowing, with the largest monthly increase in lending commitments in the history of the series. The seasonally adjusted value of new loan commitments for owner-occupier housing rose by 10.7% in July and 18.5% year-on-year.

While there is strong desire among homeowners and first home buyers to take advantage of the government incentives around construction and renovations, COVID-19 has also seen consumers keen to repair their credit primarily due to panic and fear. Many are planning to refinance due to uncertainty about their employment future. “Am I going to keep my job? What will my situation be next year?” are questions that consumers are asking.

Most people don’t realise that they are destroying their credit reports by using services like ZipPay and AfterPay, which make them look desperate and high-risk

Many of our enquiries are now from people seeking personal loans to ensure they keep afloat, and ABS figures for July saw personal fixed-term loan commitments increase for the third straight month. Previously, we saw little or no urgency in regard to personal loan repair enquiries, as people were largely making impulse purchases and often decided against the cost of outsourcing the credit repair, choosing to do it themselves or not at all.

We have seen a number of changes to the behaviour of consumers since the big four banks and other lenders started fully implementing comprehensive credit reporting (CCR) 12 months ago. Consumers are asking us to reduce the number of enquiries in their credit reports to a more acceptable level in response to the first-tier lenders tightening restrictions on the number of finance enquiries. Again, a year ago this wasn’t happening.

Education of consumers has also become a big focus for Credit FIX Solutions, especially since the onset of COVID-19. We are seeing a lot more enquiries from younger consumers, many of whom want to get personal loans to improve their financial security because they are in an industry affected by COVID-19. In all cases, we are encouraging them to use an accredited finance broker before applying.

Younger consumers are seeking personal loans because they are on JobKeeper or JobSeeker, and we play a role in educating them on how to improve their credit rating because we cannot remove their behaviour.

We are finding more and more that many consumers have poor credit because they are using ZipPay and AfterPay. Most people don’t realise that they are destroying their credit reports by using these types of services, which make consumers look desperate and high-risk to the banks.

In fact, we have had so many enquiries that we produced an e-book on CCR for consumers to download. We anticipate that these types of enquiries will continue to increase due to the changes taking place in regard to JobKeeper and JobSeeker, and as economic uncertainty due to COVID-19 continues.

We now call on the government to not only to overhaul lending as recently announced but make amendments to CCR and remove repayment history information data. This will be a win for consumers, lenders and brokers who are currently drowning in unnecessarily strict regulation.

Victoria Coster, Founder and CEO, Credit FIX SolutionsVictoria Coster
Founder and CEO,
Credit FIX Solutions