Avoiding the Christmas credit card crunch
Santa's making a list, and checking it twice ... and you need to check your credit card balance.
Credit card defaults are on the rise, and those who get new cards in the lead-up to Christmas are most likely to get into financial strife.
Credit card faults are monitored by Veda, a data company that provides information to lenders and service providers in Australia and New Zealand.
Veda records a default if borrowers and bill-payers are more than $150 and 60 days overdue.
According to Veda, credit card defaults as the first time defaults rose sharply from 12 per cent to 15 per cent in 2012/13, equating to tens of thousands of people missing repayments.
Veda spokeswoman Belinda Diprose says the high default rate on credit cards obtained just before Christmas was particularly concerning.
"Often people can over-extend themselves in the lead-up to Christmas," she says. "You've got Christmas parties, you've got presents to buy and also people are doing their annual holidays at this time, so it's quite a lot of expenses."
Veda provides free individual credit card reports, tracking credit histories.
You can get yours by following the steps on www.veda.com.au, but Ms Diprose says 80 per cent of Australians don't check them.
On top of the reports, VEDA provides an individual credit score for a fee. It's a type of credit ranking that can be key for financial institutions when deciding to give you a loan or for telco's checking you out before striking that mobile phone contract.
In March this year, credit data distribution went through several changes giving lenders access to more information when assessing applications.
Previously, lenders could see how many credit application and defaults you made - a lot of applications could easily be a sign that you're in financial trouble.
The information also previously included whether you have been bankrupt or whether court writs and judgments had been made against you.
The new information also includes when credit accounts were opened and closed as well as their credit limits, the type of credit and repayment history.
So, if you didn't pay the minimum balance or the repayment was late, it will be recorded.
"If you miss that a number of times in a row, that can be an indication that you're in some sort of debt stress, and if you were to apply for credit again, you may have more difficulty receiving it," Ms Diprose says.
"So it's really important for people who are thinking about applying for credit in the lead-up to Christmas.
"It's not only about being able to pay it off, it's about making sure you meet those minimum repayments when you come into the new year."
VEDA'S TOP TIPS TO DODGE THE CREDIT CRUNCH
Shop around for the best interest rates
Plan where you want to be financially in three months, and budget accordingly
Check your credit card spending and budget daily
Apply for credit only when you need to
Read the fine print in applications
Factor in bills, loans and credit cards
Pay bills and loans on time
Consider direct debits, aligning repayments to pay days
Source: Veda
