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Credit default risk is climbing again, particularly among vulnerable borrower segments, according to new data from illion.
The proportion of Australians at risk of credit default increased by 3.8 per cent in the first half of 2025, reversing previous declines, according to data from illion.
The credit bureau’s latest Consumer Stress Barometer has revealed that credit default risk is rising, particularly among vulnerable borrower segments, with renters and young families facing significant financial stress.
The barometer tracks the probability of Australian consumers defaulting on credit agreements within the next 12 months by pulling from illion’s proprietary consumer credit and expenditure databases and assessing factors such as loan arrears, credit usage, and spending behaviour.
The index measures the percentage change in consumer credit risk, relative to a January 2022 baseline, smoothing out fluctuations with a three-month rolling average. This allows financial institutions, policymakers, and businesses to better anticipate risks and economic shifts before they escalate.
The research revealed that after a period of relative stability, financial stress indicators are once again showing signs of strain due to rising living costs, shrinking buffers, and limited access to relief.
The Consumer Stress Barometer found that while household savings have declined by 4.5 per cent since January, the erosion has been more pronounced among renters, who have borne the brunt of inflationary pressure.
For non-home owning households, rents rose by 6.8 per cent in the first half of 2025, well above average wage growth, which sat at 4.2 per cent according to ABS figures. Among low-income families with children, the figure was closer to 10 per cent.
At the same time, the credit default risk for households with dependents rose by 6.3 per cent, almost twice the national average.
Among 25- to 39-year-olds, credit card delinquency also spiked by 8 per cent as households increasingly rely on revolving credit to manage essentials like food, fuel, and rent.
Given the findings, the company is now urging lenders to closely monitor both new and existing borrowers.
“The latest figures should serve as a clear warning to lenders,” said Barrett Hasseldine, head of modelling at illion, an Experian company.
“While mortgage holders may be seeing some stabilisation, default risk is quietly rising again, particularly among borrowers with no property equity, limited savings, and rising debt commitments.
“It’s essential that lenders continuously profile and reassess borrower risk, not just at the point of onboarding, but throughout the lifecycle of a loan.
“Many young families are being stretched financially. They’re juggling rising costs with limited buffers and often turning to credit to stay afloat.
“The challenge for lenders is how to proactively identify and support these borrowers before they fall into arrears.”
Hasseldine urged lenders to take a more proactive stance in identifying and managing risk.
Illion called on lenders to improve how they understand and assess borrower risk using real-time data and AI, which would allow them to identify struggling customers early.
Other suggestions included offering tailored support and quickly adapting to economic changes with “agile, testable decision models”.
“From our perspective, continuous credit health monitoring is no longer optional – it’s essential,” Hasseldine said.
Despite the increase in credit default risk, arrears remain at historically low levels and are expected to trend lower, according to data from data and analytics company Cotality, as rate cuts ease mortgage pressure.
The share of borrowers who are overdue or “impaired” on their mortgage repayments inched up through the March quarter, but tighter serviceability buffers, low levels of risky lending, and strong employment have all helped households stay on top of repayments.
[Related: Falling rates keep mortgage arrears at low levels]
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