17 December, 2009
The New Year could bring a significant rise in the number of Kiwis facing debt stress and with black marks on their credit reports if consumers don't effectively manage the financial pressures of the festive season, warns credit reporting and debt collection agency Dun & Bradstreet.
New research released today reveals that the annual Christmas credit splurge has traditionally resulted in a near 94 percent increase in debt referrals in February as consumers find themselves unable to pay back the money spent over the holiday period. However, this figure could be even higher in 2010 due to the pressure that the global credit crisis has placed on families over the past 12-24 months.
D&B is urging consumers to keep a close eye on their spending over the Christmas break so they can avoid the pain of high interest charges or damage to their credit report in the New Year. This warning coincides with additional D&B research which reveals that the many Kiwis don't truly understand what information is included on their credit report and how it is used by credit providers to assess a credit application.
Research shows that it is often only after consumers have had a credit application denied that they order a copy of their credit report and subsequently repay their defaults. Thirty eight percent of defaults are paid following the denial of a credit application.
According to John Scott, D&B New Zealand General Manager, many New Zealand consumers don't understand what information is included on their credit report and how it is used by credit providers to assess a credit application.
"That many consumers don't understand their credit report is a cause for significant concern," said Mr Scott.
"The lack of understanding often creates confusion as consumers end up with credit products that are more expensive than they expected but they don't understand why. Often it's because of information on their credit report which they could have known about before applying for credit.
"Ultimately, the consequence is credit choices that can have a long lasting negative impact."
Negative events, such as defaults, are listed on a credit report. A default stays on an individual's report for five years and can severely limit a consumer's ability to access credit in the future. In addition, credit applications (but not whether they are accepted) are recorded and this means that too many enquiries, even when just shopping around for the best deal, can look like a consumer is taking on large amounts of debt. A potential lender may decide to reject a new application because of a high level of application activity or because of a previous late payment that has been listed on an individual's report.
A further warning sign to consumers to manage their finances and credit facilities over the holiday period comes from D&B research which shows that those who apply for bank credit in February are twice as likely to default on their obligation in just four months than applications made at any other time of year. This finding clearly demonstrates that using credit to cover the shortfall when all other options for payment have been exhausted will likely cause further financial pain and result in a black mark on an individual's credit report.
The research also reveals that consumers who resort to taking on more credit as a means of paying their Christmas bills are also likely to wind up defaulting on other forms of credit, with this group 14 percent more likely to default on non-bank credit such as a phone account.
Dun & Bradstreet warns that the pain caused by recent economic events could make the start of 2010 more painful than the previous year as some households are already facing a degree of financial stress. The latest bankruptcy figures show that 2,521 individuals filed for bankruptcy in the 2008/09 financial year. In addition, 2,831 No Asset Procedures and 257 Instalment Orders were filed. All of these figures are up on the previous year.
On top of this, the Reserve Bank has indicated that a continuation of the economic recovery could result in the removal of monetary stimulus next year, which means that New Zealanders who plan to fund their Christmas festivities on credit could be forced to pay higher rates of interest in the New Year.
According to Mr Scott it is a sobering prospect for those families that are facing Christmas with a lower disposable income than last year.
"Our research provides an alarming reminder to consumers that Christmas spending must be watched closely to avoid the New Year blues," said Mr Scott.
"Each year we see too many consumers spend beyond their means over the holidays, only to result in unnecessary costs and pain the following year.
"Despite the fact that New Zealand appears to be on the road to economic recovery, this Christmas could be particularly worrisome. Some households are facing financial difficulties as a result of the credit crisis and because they may be facing Christmas with less money than last year we could see an increase in unaffordable credit related spending.
"Ultimately, this could result in the pain of high interest charges and possible damage to credit reports in the New Year."
For further information and comment please contact:
Danielle Woods
D&B Australia & New Zealand
Ph: +61 2 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 150 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than 1.5 million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
