Young people 'drowning in debt' weren't taught about credit
Young people 'drowning in debt' weren't taught how to make credit work for them.
18 July 2013
A consumer advocate for credit reporting accuracy says recent reports of Gen Y carrying a high proportion of debt to income and a large portion of defaults - demonstrates we've dropped the ball on credit education, despite the easy access to credit for young people in Australia.
CEO of MyCRA Credit Rating Repair says credit education in Australia may be on the rise with the implementation of new credit laws next March, but it is too little too late for some young people.
"I feel our system has failed the current under 25's, by giving them fairly easy access to credit like mobile phones, without arming them with educational tools to keep them from making mistakes which can see them pay for years to come and ruin their chances of successful mainstream credit for big ticket items like housing," he says.
Statistics presented in a Roy Morgan poll recently, showed 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.
This followed three-year statistics released by credit reporting agency Veda Advantage in March, showing Gen Y holds 60% share of all credit defaults - topping the list in every category from telco defaults through to loan defaults.
"Many young people amble through their early years with credit, making mistake after mistake that can cost them dearly down the track. I have often said credit rights and obligations should be taught in schools," Mr Doessel says.
He says he has seen many young people caught in the credit trap - robbing Peter to pay Paul and in the end their good name suffers for five to seven years due to credit infringements.
"Before they know it, they're 20 years old and facing Bankruptcy or Court Action and years of being locked out of the finance market coming into the crucial years when they need it most," he says.
Mr Doessel adds that many young people also don't know their basic rights around disputing bills or around credit reporting and this can a see them at a disadvantage in the current system.
"Dealing with a
Credit Provider in matters of dispute is not always easy -
and many young people can assume they should accept what
they're told without question - but in matters of credit
reporting young people need to be educated to be able to
effectively advocate for themselves - this is where we see
many unable to resolve billing disputes or even cop unjust
or inaccurate credit listings on their credit file
unnecessarily," he says.
The top 5 things young people should know to avoid bad credit
1. Be careful with all of your credit.
It doesn't have to be a big amount to have an impact. Unpaid accounts for as little as $100 can see you defaulted and banned from mainstream credit for five years, and licenced credit (credit cards and loans) paid more than 5 days late can see a late payment notation added to your credit file which remains for two years.. 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
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.
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. In
addition to this, you should also regularly obtain a copy of
your credit file. Your credit report is free once every year
from Australia's credit reporting agencies - and you should
order it annually to make sure everything reads as it
5. You have a right to correct mistakes.
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. Credit Providers have a legal obligation to remove a listing which was placed incorrectly.
"The process of dispute is not easy, but Credit Providers should be called to account for any inconsistencies," Mr Doessel says.
For more information on money and credit decisions, under 25's can go to the MoneySmart Rookie website.
You can find more information on your credit file and disputing a credit listing on MyCRA's website www.mycra.com.au.