Average Australian’s credit score improves in 2022

Despite rising inflation and myriad economic pressures, the average Australian’s credit score actually improved in 2022, new research has found.

Listen to the news at the moment and you’ll most likely hear reports of people doing it tough, whether they’re struggling to pay for basics at the supermarket or make their ever-increasing monthly mortgage payments.

The official cash rate is still rising, increasing the cost of borrowing money each month and inflation in Australia has hit a 30-year high.

You could be forgiven for thinking then that more people would be failing banks’ lending criteria. But you’d be wrong.

Read: Here’s why you need to check your credit score

Research from credit bureau Experian has found that the average Australian credit score fared “surprisingly well” in 2022, increasing by 0.4 per cent.

In a surprising reversal of the usual trends, it was younger Australians who saw the greatest improvement in their credit score, while older Australians’ scores remained largely unchanged – which is still an achievement given the economic climate.

Charlotte Rankin, Experian’s director of client advisory, told Mortgage Business the results were certainly unexpected.

“Credit scores fared surprisingly well in 2022 as Australians faced record-high inflation and increasing interest rates and cost of living,” she said.

Read: Applying for a credit card on the Age Pension

“In theory, this environment may increase the rate of missed payments and defaults, negatively impacting credit scores.

“[But] the fact that average credit scores were maintained, and for certain demographics slightly increased, indicates that Australians wisely adapted their financial behaviours to manage the challenging economic conditions.”

Data from the Australian Bureau of Statistics (ABS) shows deflated spending and higher overall household income across the two major lockdown years has led to many Australians being able to establish a savings buffer, which has then helped them weather the pressures of 2022.

But the same data also shows this buffer is dwindling as the economy bites. Earlier last year, Australians were saving at an average rate of 8.3 per cent, now that rate is just 6.9 per cent and on track to sink further.

Read: Threat of ‘postcode discrimination’ skewing credit scores

So while Australians’ credit scores look good now, will they look as good in 12 months?

Ms Rankin said that economic conditions showed no sign of immediate improvement, but that new credit reporting hardship legislation would help keep most Australians’ credit scores intact.

“These economic challenges show no sign of slowing in 2023,” she said.

“The good news is that hardship regulation introduced in July 2022 means that a framework is in place to manage the increased rates of hardship expected for the year ahead, while also safeguarding against any financial hardship arrangements impacting credit scores.”

Under the new legislation, if you agree to a financial hardship arrangement with your lender for a credit card, personal loan, car loan or home loan, your repayment history will be safeguarded by a new type of indicator on your credit report, flagging that a special payment arrangement is in place for a period due to financial hardship.

The credit report will not include the reason for the hardship arrangement, or the details of the arrangement. As long as you stick to the arrangement, your score will remain unchanged.

Do you know your credit score? Do you think it would be high or low? Let us know in the comments section below.

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