In the UK, on the 31st March 2020: The 3 major credit reference agencies (CRAs), Experian, Equifax and TransUnion have, today, confirmed that all of consumer credit scores are protected once agreed ‘payment holidays’ have been put in to place, as a result of the COVID-19 pandemic.
Payment holidays are agreements made between individuals and their lenders, to pause regular loan payments. Earlier this month the UK government declared that homeowners affected by the crisis are able to request a payment vacation of up to three months (this includes both residential and buy-to-let mortgage customers).
To help individuals who require payment holidays, a special measure known as “emergency payment freeze” is currently being implementing by the CRAs. This ensures that everyone’s current credit score is protected for the length of the agreement payment holiday.
In conjunction with government guidance on mortgages, lenders could also be ready to create special arrangements across different kinds of credit, which could include payment holidays, reduced payments, paused payments or credit limits being increased. These special arrangements are all covered by the CRA emergency payment freeze agreement, this means that any impact to your credit score will be minimised.
How Will a Payment Freeze be Reflected on My Credit Report?
If you and your lender have agreed on an emergency payment freeze, then during this time that your payments are paused (with that lender) the payment status of your account will not get worse. for instance, if your account was up up to date prior to the freeze beginning, your account can will still show as up to date up until the freeze ends. If you were already behind with payments, the amount of arrears before the freeze began will continue for the length of the freeze. Throughout the freeze, the monthly payment amount shown on your report will remain the same.
Will The Payment Freeze be Recorded Anywhere on My Credit Report?
No, the fact that a payment freeze was agreed with your lender, won’t be recorded on those accounts or anywhere on your credit report.
How will a payment freeze affect my credit score?
Agreeing with your lenders to pause payments for a set time shouldn’t lead to payments showing up as being defaulted on your credit report, this should mean that your credit score won’t be affected. Please bear in mind that, in addition to the payment status of your accounts, credit scores additionally factor in other elements, like your total level of unsecured debt (for example, the balance of any credit cards, personal loans and overdrafts) and how heavily you use your credit cards (your credit utilisation).
Could the payment freeze impact my ability to get credit in the future?
Under the Emergency Payment Freeze agreement, an individual’s credit score will be frozen or maintained during the agreed payment holiday period. CRAs cannot guarantee that payment holidays won’t impact a consumer’s ability to obtain credit in the future, as different lenders policies will invariably be different. This should ideally be discussed with your lender directly.
What if I fall behind with payments without an agreed payment holiday in place?
If a customer falls behind with their payments without a payment freeze, then the standard CRA position applies – a worsening status is probably going to mean that your credit file is negatively impacted, which is why it’s necessary to have early discussions with your lender if you’re thinking that you might have difficulty meeting any of your repayments.
I tried to call my lender but couldn’t get through. Could I just cancel my Direct Debit?
Until you’ve discussed your circumstances with lenders, attempt to keep making your regular payments if you are able to. It is strongly discouraged to pause payments, for instance by cancelling Direct Debits, while no agreements have been made with your lenders. Unauthorised missed payments aren’t good for credit scores and will also have an effect on your ability of obtaining credit in the future. Banks, lenders, along with other providers are understandably busy attempting to assist their customers during this tumultuous time. To help, many mortgage lenders have recently updated their websites to permit customers to pause their payments online.