Christmas credit crunch warning: New data reveals pre-Christmas applications most likely to cause credit default pain
Sydney, Australia: 1 September 2014 – It is an annual ritual to ‘pull out the plastic’ as we embrace the Christmas spending spirit, but analysis of Veda credit data has revealed that credit cards are accounting for an increasing share of first consumer credit defaults, up 3% in 2013.
Veda, Asia Pacific’s leading provider of consumer and commercial data intelligence and insights, reports that credit card defaults as the first type of credit defaults rose sharply from 12% in 2012 to 15% in 2013 – representing tens of thousands of credit card defaults.
If you’re applying for credit in the lead up to Christmas, the data also revealed that those who apply for a credit card in the last quarter of the year are more likely to get into financial strife. Consumers who made credit card applications between October to December were 20% more likely to default 6-9 months from the date of the credit application. [1]
As well as credit card woes, the data found personal loans as the first default type had risen by 1% in the past year and now accounted for 10% of all first defaults.
Veda spokesperson, Belinda Diprose, said it was a concern that the share of first defaults[2] for credit cards and personal loans had risen so sharply last year.
“Our data shows that consumers turn to credit in the lead up to the festive season to fund their spending. It can result in consumers overextending and getting into debt stress.
“With a heavy reliance on credit cards in the pre-Christmas period it’s easy to let bills get out of control, so making a budget and a concerted effort to pay your bills on time is a good practice,” Ms Diprose said.
“If a credit card bill or personal loan payment goes unpaid it can have a negative impact on your credit history and might affect your chances of getting credit down the track. This is even more important with recent changes to Australia’s credit reporting system, where a person's credit history can now include what is termed ‘positive information’ such as monthly repayments.”
Veda’s debt warning is timely with the launch of MoneySmart Week (1-7 September), a not-for-profit national initiative promoting the importance of financial literacy, which has earmarked today’s financial challenge to ‘Ditch Your Debt’.
“Veda is encouraging people to use the information to be empowered to change their financial behaviour. Our Equifax Score ranking, launched late last year, is one of the tools people can access to help understand and manage their credit profile. Over time, it may enable people to negotiate a better deal with providers,” Ms Diprose said.
VEDA’S 5 TIPS TO DODGE THE CREDIT CRUNCH:
- Do your homework. With so many credit cards and loan types on offer, it pays to do your research on interest rate deals. Read the fine print and don’t be tempted by clever marketing tactics to sign you up.
- Make a list and check it. Plan where you want to be financially in three months and align your spending to that pool of money available. Tally your credit card spending daily and cross check to your budget.
- Keep track of your credit commitments. Only apply for credit if and when you need it. Be mindful that debt comes in many forms. Keep sight of the full picture: including money you owe on credit cards, store cards, utility and other regular bills, personal loans and mortgages.
- Pay bills and loans on time and save. Consider setting up direct debits and schedule loan repayments for your pay day. Don’t throw money away in late fees.
- Know your credit track record. Over-extending your credit could result in defaulting on your loan. This can have long term impacts on your credit worthiness. Get your Equifax Score and credit report and actively manage your credit profile. You can even monitor changes through Credit Alerts and help protect your identity. Visit www.veda.com.au