Pre-Christmas credit splurge behind growing defaults

Christmas is a busy time for Australians — and it’s also expensive. New statistics have highlighted the kind of financial pressure placed on individuals and families across the nation during this period, with credit defaults surging in the lead up to the festive season.

According to credit reporting agency Veda, individuals who apply for credit cards between October and December, inclusive, are 20 percent more likely to default on their repayments six to nine months from their application date, Veda explained.

“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,” Belinda Diprose, Veda Spokesperson, said.

Feeling the pressure

The latest figures reveal a telling trend that those who apply for credit cards in the months leading up to Christmas are more likely to find themselves in financial difficulty.

Credit cards are also becoming a more significant reason for consumer credit faults, up by three percent during 2013.

In 2012, 12 percent of credit defaults arose from failure to make the adequate credit card repayments — a figure which jumped to 15 percent in 2013.

The findings could suggest that more Australians are willing to spend beyond their means when under pressure in the lead up to Christmas. Paired with other obligations such as mortgage and car loan repayments, consumers often struggle to get on top of their spending.

In addition to credit card stress, personal loans are also causing financial trouble for consumers. Such loans accounted for one in 10 of first defaults during 2013.

The ramifications of credit defaults

Australians who struggle to pay off their credit card debt or meet their personal loan obligations won’t just find it difficult to make ends meet. 

Failing to make the required repayments can affect individuals’ credit scores, which can affect future borrowing efforts. This includes big-ticket borrowing, such as taking out a home loan.

“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,” Diprose noted.

“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.”

Accordingly, individuals must budget carefully to ensure they cover their expenses — during the festive season and beyond.

On a positive note, consumers will be pleased to note that the current Financial System Inquiry is looking into interchange fees and merchant service fees, which largely affect credit card users overall costs.

Compare credit cards