Responsible lending guidelines are designed by financial regulators to protect the vulnerable from entering into more debt than they’re able to service, but are having a knock-on impact on some retirees.
One Starts at 60 reader complained that, despite having held a credit card with the same institution for 15 years and being able to show a “substantial” sum in savings and superannuation, his recent request for an increase in his credit limit to ensure he had sufficient funds to cover travel bookings was rejected, simply because he was deemed to be without a “steady income”.
“The computer said ‘no’, even though the customer service staff at the bank could see that I had never missed a repayment in the whole time I’ve had the card and had a substantial amount of funds,” the reader said.
A spokesperson from Comparethemarket.com.au, which provides comparisons of credit cards and other financial products and utilities, said that banks were in a tricky position due to the guidelines around responsible lending, which lenders have followed more stringently following the Banking Royal Commission.
“As we get older, we begin to rely more heavily on the nest egg that we have built up over time, whether it’s from a superannuation account or an investment,” the spokesperson said. “This puts the bank in a difficult situation as they have a financial duty to make sure they are responsibly lending money to consumers who can demonstrate where their income is coming from, and if this is enough to cover outgoing expenses.
“With income only coming from one or two sources such as super, an investment or a pension as we hit our retirement years, some banks won’t view this as a sustainable salary stream and more so as a savings account that we dip into. ”
The spokesperson said that banks were likely to be particularly wary of retirees who weren’t able to demonstrate that they had carefully calculated their retirement income requirements and how those requirements would be covered without the security of a regular salary.
But with credit cards still playing an important part in a world that increasingly relies on online transactions, what should a financially responsible over-60 do to ensure they are approved for credit? Comparethemarket has some advice.
Banks look at several factors when considering a credit application, including how much the applicant earns and how they earn that income, their savings habits and their general household expenditure. No matter the age of the applicant, Comparethemarket’s spokesperson recommended being prepared for some close questioning.
“By having enough supporting evidence and documentation on hand, such as bank statements or statements from your income sources, you’re putting yourself in the best possible position to showcase your earnings and how you manage your expenses day-to-day or even month-to-month,” the spokesperson said. “It’s crucial to display how you use your income efficiently and the savings habits you apply to stretch your nest egg.”
Banks were also likely to request the transaction history on any deposit accounts or credit cards the applicant holds, and require information on how the new credit card or increased credit limit would be used.
“Perhaps you’re looking to make a big purchase,” the Comparethemarket spokesperson went on. “If so, explain that you may need an interest-free component within your card so you can pay off this expense over a certain period of time. Even demonstrating how you have paid off other big-ticket items in the past (mortgage, car loan, holiday) will put you in a good position when dealing with your bank.”
Even with careful preparation and proof, you may be declined credit. It’s a frustrating situation but the upside is that it’s an opportunity to ask follow-up questions that provide you with some insight into the bank’s decision and feedback on any changes you could make to improve your chances of approval in future.
“Look at your credit rating too, and how your transactions can work for or against you,” the spokesperson advised. “Identify the issues and then consider comparing what other banks and financial institutions have to offer when it comes to their panel of credit cards. You may find that a different bank is a better fit for your financial situation and requests.”
Credit reporting bodies are required by law to provide every person with a free check of their credit file every 12 months, which you can read more about on the Australian Securities and Investments Authority’s site here.
It goes without saying that prior to retirement, it’s important to review your budget in preparation of any decrease in income that will come with the end of paid employment. A realistic budget, and even the ability to save in retirement, shows a lender that you’re in excellent control of your finances.
Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.