In March 2020 Experian, Equifax and TransUnion, the three big UK credit reference agencies, agreed that having a temporary “payment holiday” with a lender because of Coronavirus problems won’t harm your credit score.
The FCA, who regulates lenders in the UK, then set out detailed rules about payment breaks for most kinds of debt, including mortgages, unsecured loans, credit cards, catalogues, car finance, payday loans etc.
For most of these types of debt you can get a three month payment break (the FCA calls this a “payment deferral”) and at the end if you need more help you can have a second three month break. (The exception is payday loans where you can only have a one month freeze, but no interest being added.)
The FCA said these payment breaks will not be recorded as missed payments or defaults.
This is good news. Worries about credit scores should not put people off from getting the help they need.
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Protecting your credit score if you take payment breaks
The payment status of your account with that lender will not get worse while your payments are halted or reduced:
- if your account was up-to-date before, it will continue to show as up-to-date until the payment break ends – no missed payments will show;
- if you already had arrears on the account, the level of arrears will remain the same;
- a payment break or reduction with your lender will not be reported on your credit report.
This means the payment reduction or pause to payments that you have set up will not make your credit score change.
But other things also affect your credit score and using more credit because the interest is piling up may harm your credit rating. If you take out a new loan or use more of your credit card limit or more of your overdraft, you may see your credit score drop because of this. See How much will my credit score change? for some details about how large these effects are.
BUT future lenders may be able to see payments breaks
The FCA who regulates the lenders says:
“Under our guidance, firms should not report a worsening status to credit files if you take a payment freeze. This should help make sure that there is no long-term negative impact on your credit file if you are able to get back on track at the end of a payment freeze… You should also remember that credit files aren’t the only source of information that lenders can use in lending decisions. Factors other than payment history may also be relevant.”
So in future when you apply for credit, the FCA is warning that if you have had problems during the pandemic and taken a payment break, lenders may see this and it may mean you are declined for that credit.
There are various ways lenders may be able to see what has happened to you:
- your actual payments made will show in your credit records. They won’t show as missed payments or defaults, but a lender who looks closely at your payment history will be able to that you didn’t make any payments in April, May and June, say.
- many lenders try to crosscheck what you say you earn on a credit application by looking at CATO (that stands for Current Account TurnOver) information from banks. This tries to show how much has been credited to your bank accounts. That may have been reduced if you were on furlough or if your self employed income dried up
- some lenders, including most mortgage lenders, ask for 3 or 6 months of bank statement, which will show if your income dropped or if your mortgage, loan and credit card repayments were halted.
- a few lenders may ask you for access to your bank account via “Open Banking“. This isn’t much used yet but it may become more common in the rest of 2020 and 2021 as lenders search for ways to reduce their risk in what is expected to be a very difficult environment.
Will this really affect you?
Lenders will be able to to see if you have had reduced income through CATO, bank statements and Open Banking even if you never asked for a payment break.
That reduced income is likely to be what most worries lenders and may reduce your chance of getting credit for a while.
So if you have had financial problems over the pandemic, it’s going to be hard to tell if taking a payment break is making your future chance of credit much worse.
It seems likely that there will be three sorts of lenders who will be most concerned:
- lenders giving large, long term loans such as mortgages and car finance;
- credit card lenders offering 0% deals; and
- lenders who specialise in the “bad credit” market, who may need to be more sure that you won’t have any problems in future.
There are already reports of some people being turned down for mortgages, see this news story in July 2020: Borrowers who took loan repayment ‘holidays’ after being told it wouldn’t affect their credit score are now struggling to obtain mortgages.
These effects may turn out to be short term if the world gets back to normal over the next few months. If it does, will any lender in 2022 really care that you, along with millions of other people, had a payment break in 2020?
Should this put you off taking a second payment break?
In July and August many people will have to decide whether to take another payment break on their mortgage, credit card, car finance or other debts.
I think the simple answer is that if you need another payment break then take it and don’t worry about accessing future credit – the important thing is to get through now without defaults which will harm your credit record for 6 years.
But if you don’t need a payment break then don’t take it! Especially if you need to apply for a mortgage or another large loan in the next six months.
And how it worked out in 2021…
People still on furlough have found it very hard to get a mortgage.
But some people who have returned to full-time working have also been rejected. As one woman told the BBC:
“I feel unfairly penalised. Furlough has been brilliant in that it has protected my job. But I didn’t expect to come out of the other side – with a deposit, no debt, a perfect credit rating, all of the things that should make me an ideal first time buyer – only to find out that banks just will not lend to me at all.”
That article also reported that NatWest and the Royal Bank of Scotland, are refusing mortgage applications from people who took the government’s self-employment income support scheme (SEISS) grant.
This post was updated in July 2021.
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M f aspinall says
All well and good,but the Bank of England has dropped interest rates to basically zero,whilst Morgage rates have dropped iv not seen any of the lenders dropping rates on credit cards! Vanquis is still charging almost 40% and most of the rest are 15~25% you would have thought with government orders to stay home,thus loss of income,they would have done their bit to help its customers in this emergency?!! Shocking
Alison says
I had a letter from Tesco bank just prior to Lockdown stating they were increasing my credit limit from £900.00 to £1200 , have now received a letter today dated the 3/4/20 stating that they are now retracting this & my credit limit will stay at £900.00 , I also pay well before my due date and more than the minimum payment required, is there any way I can dispute this as can afford the repayments & have also been giving a pay rise or is all credit companies doing this to protect themselves due to Coronavirus?
Sara (Debt Camel) says
It’s sensible of them to stop the automatic credit limit increases.
If you want you can ask them to increase your credit limit.
Sarah W says
I arranged to pay a slightly lesser amount on my Vanquis card for three months (in the middle of March as I saw the way things were going) and it’s already appeared as a negative on my credit report. Multiple phone calls to them has yielded no help at all except to say that they could offer me payment holiday which might not affect my credit rating. I’m aware we are all dealing with shifting sands, and in some cases, extremely quickly, but I feel it’s worth keeping an eye on your credit report in these times.
Sara (Debt Camel) says
if you agree a payment holiday OR lower payments because of Coronavirus it will NOT affect your credit rating.
When you made the arrangement to pay less in March, did you tell them the reason was Coronavirus?
Sarah W says
I did but it was before all the government-backed schemes so I’ve asked them to retro-fit the updates! No idea if it will work.
Sarah Wolf says
I’ve now got back in touch with both providers and they promise me that they’ll remove the bad mark on my credit report (it dropped 114 points as a result of me asking for reduced payments NOT a payment holiday). The lenders had only been told to not make a change to credit reports in the event that customers ask for payment holidays. I thought I was doing the right thing by continuing to pay something, rather than stop paying altogether) but it’s completely mucked up credit report. I am praying that in 6 weeks time all the negative marks are reversed as I have spent YEARS trying to improve it, only for it to be knocked down so hard by their error. It’s heart-breaking.
Sara (Debt Camel) says
Yes they should correct this. If they don’t, put in a formal complaint and take it to the Ombudsman if necessary.
Sarah W says
Just wanted to update this. My credit score still isn’t back to the original levels it was in March. The two lenders who made it fall by so many points have reversed their decisions so my credit score is slowly climbing back up but I feel completely aggrieved that this happened to me. Experian don’t care and just keep sending me automated responses saying that credit scores are affected by a number of factors.
Sara (Debt Camel) says
this isn’t Experian’s fault, they just calculate the score based on what they are sent. If the missed/late payment markers have been removed it is possible your score will still have got worse if you just owe more money as this increases your “credit utilisation”.
R says
Hi Sara
Advise please if I may.
I set up a payment deferral with Satsuma in May as my wages had been impacted by corona. They repeatedly told me on the phone (when recommending the option) that my credit file would not be impacted. Despite me contacting them to make my next payment, and it now being back to normal, i’ve had a notification this morning to say my credit score has dropped. Upon checking, they have registered a missed payment on my credit despite assuring me they wouldn’t! It’s my only missed payment in 6 years so my score has dropped quite considerably. I’ve put in a complaint, but they take months to reply due to un affordability complaints. Am I right in my understanding that they shouldn’t be doing this based on the FCA’s guidelines for the pandemic?
Sara (Debt Camel) says
can I double-check, your arrangement was just for 1 month? This makes a difference to the payment deferral rules for payday lenders.
Are the payments now really affordable?
R says
Yeah it was one month, but due to them Putting the arrangement in place for X amount of days, it meant that 2 payments were due within that period, I ended up contacting them and Ending the period earlier so that I could start making my payments again
Sara (Debt Camel) says
OK, then they should not have registered a late payment.
Correct to put in a complaint, I suggest you ask for compensation, eg £100 if they resolve this quickly and say you will be asking for more if it has to go to the Ombudsman. And send it to FOS at 8 weeks.
R says
Thank you very much for your advise Sara, I am so angry! The sacrifices I have put myself through in order to never miss a payment in 6 years and they go and do this! Angry is an understatement!
Sara (Debt Camel) says
The sacrifices I have put myself through in order to never miss a payment in 6 years and they go and do this!
That suggests that you have a good affordability complaint against them…
Claire says
I have a query with vanquis too, I’ve come to the end of my 3 month payment freeze & as they kept adding on interest I have gone over my credit limit so the first payment due was nearly £400, I contacted them as I couldn’t afford that amount (as my husband is self employed & still not receiving an income due to corona virus) & they have agreed £50pm for 3 months, which I do appreciate but they will mark my credit file as I’ve taken an arrangement to pay & will obviously affect my credit score & be on there for 6 years, i had no choice but to accept, I emailed the fca for some advice but they have just said refer to their website, can vanquis mark my account this way? My husband has a card too but we couldn’t accept the further payment freeze as because of his job he can’t have an arrangements on his file so we had to find £344 for his minimum payment! I am going to write to vanquis but just wanted some advice first.
Sara (Debt Camel) says
It sounds as though you and your husband have a lot of expensive credit card debt – that suggests that even before the pandemic it might have been a good idea for you to talk to a debt adviser about your options… Now with income problems and higher debts I think you should do this. I suggest you phone National Debtline on 0808 808 4000.
It is usually a mistake to try firefighting each debt as it’s crops up, better to look at the overall picture and get A Plan.
You can’t now get a payment arrangement now that means you will pay less than the normal amount, have interest frozen and not have it affect your credit record. It would be lovely, but this isn’t on offer.
The “payment breaks not affecting your credit score” that were discussed in the article above are with interest still being added. If you need interest to be frozen – and it sounds as though you do – this will affect your credit score.
But you can ask Vanquis to waive the interest they added during the last three month payment break
The FCA says:
Where the customer, at the end of an initial payment deferral period, was not given a further full or partial payment deferral of any length under this guidance and was entitled to forbearance under CONC 6 or 7, any interest that would not have accrued but for the initial payment deferral should be waived as soon as reasonably practicable at the end of the initial payment deferral period.
That may sound difficult to understand. But basically it means if at the start of the your payment break back April you couldn’t afford the Vanquis repayments because your husband’s income had dropped a lot, at that time you could have asked for a freeze on interest and an affordable payment arrangement, which may only have been £1. Instead you took the payment break (possibly because you didn’t realise you could ask for interest to be stopped, possibly because you didn’t want your credit record affected). But now the FCA says if you are still in difficulty, you can effectively wind back the clock and ask for that interest to be deleted.
Doing this does mean your credit record will be affected. But if you have no realistic chance of making these payments without borrowing more (big mistake) of getting behind with bills (another big mistake) then that is what has to happen.
Mike says
I asked virgin credit cards to drop their interest rate for three months, that was all and they froze my payments for three months, I didn’t want that so iv had to do monthly bank transfers to pay complained but can’t deal with complaints!, you should warn Vanquis customers that their phone numbers are premium rate just to speak to them!! That should be illegal , and if you switch utilities to save cash whatch your credit file and score I switched from BGas to E.on only for E.on to do HARD searches and ruined my credit file looks like they have started treating utilities switches like applying for credit which hAs to be wrong as we need utilities to exist! They admit they were wrong iv asked them to remove them but will take them 6 months or more ! Shocking
ian mac says
hi sarah how did you get the decisions reversed? i applied for a payment breakthrought the wbsite in a secure message to sanatander for mortgage,car finance & credit card , thought i was covered, apparently i was on mortgage & car but not credit card now i have 2 negative missed payments, we are trying to get a mortgage! nightmare, any advice would be helpful, thanks ian
Sara (Debt Camel) says
You can ask Santander to remove the missed payments.
BUT it may be hard to get a mortgage if you have just been on payment holidays even if your credit record is not affected. Are you just trying to get a new fix? or move and get a larger mortgage?
ian mac says
hi sara thanks for the reply, i have asked and currently awaiting a call from them BUT if im not succesful i will take it further, as i know i have a case, its for a new buy to let venture
Sara (Debt Camel) says
ok, but you have to assume that for a buy to let mortgage, the lender will want to see your bank statements and they will show the payment breaks even if they are not flagged as missed payments on your credit score.
So you may have problems with a mortgage application even when you get Santander to corect your credit record, as they should.
ian mac says
hi sara just been informed today from santander that the markers will not be removed because i did not go through right email address for credit card, asked for car,mortgage and credit card on same email, gave all numbers and instalments and got the car and mortgage(even though that wasnt the right email,consumer credit!) but not the credit card, im pursuing it further, any advice i would appreciate, as i have to get these removed off an unblemished credit file
Sara (Debt Camel) says
I suggest you put in a formal complaint. Say you now understand that you should have put in a separate break request about the credit card, but at the time you were very stressed and worried and trying to get your finances into a safe position. If Santander had told you at the time that you needed to put in a separate break request for the credit card, you would have done this, but they never mentioned it so you naturally assumed it was all being dealt with. Say you don’t think Santander have treated you fairly or sympathetically when they can see you tried to do the right thing and ask for the defaults/missed payments to be deleted from your credit record. Add that you will take the case to the financial ombudsman and ask for compensation if they refuse as you have been turned down for a mortgage because of this.
Don’t use my exact words (except for the “treated you fairly or sympathetically” bit – include that phrase!). You need to tell your story and I don’t know the details!
ian mac says
hi sara i will do that thank you for the precious advice, ill advise on the outcome when and if i get one
Mark says
Hi Sara,
I’ve had a 3 month payment break on one of my loans. The payment holiday has now finished and I’m starting to make my regular payments again. Although reporting no negative information during the payment holiday, the company has now added late payment markers on my credit file for 3 months of missed payments.
I’ve queried this with them and they are telling me they have reported correctly but they never advised me when taking the payment holiday that I needed to make the 3 months payments when it finished to prevent these negative markers.
Just after some advice really on if they are correct as I’m sure this will be effecting alot of people if they are?
thanks
Sara (Debt Camel) says
It doesn’t sound right.
To clarify:
– this is a standard personal loan, not a payday loan, not a secured loan, not car finance or anything unusual?
– you can now afford to make the normal loan repayments?
– how has the firm suggested that the accrued amounts should be repaid – this could typically be by larger monthly payments or by extending the term of the loan?
Mark says
It’s an instalment loan (over a year) with satsuma loans – the 3 months are to be added onto the end of the loan.
Payments restarted on 1st July and I’m fine with making these now.
I had an initial 2 month break and then another 1 month and I advised I’d be able to restart 1st July all the way through.
Thanks
Sara (Debt Camel) says
OK, Satsuma are best known as a payday lender, but as this loan was originally for more than a year, it is a normal loan not a payday loan.
I suggest you go back to them and quote from the FCA’s guidance here https://www.fca.org.uk/publication/finalised-guidance/finalised-guidance-personal-loans-coronavirus-updated-final-guidance-firms.pdf which says:
“1.63 Where at the end of a payment deferral period a mechanism to repay accrued amounts is agreed we would not expect this to result in any negative reporting (subject to subsequent payment performance being reported in the usual manner).”
Can you let me know how this goes?
Mark says
Will do, thanks for your help!
Martin wildgoose says
Hi I have finished payments to a debt management company and my defaults are still on my credit score from Cabot.
I was told these would come off after the 2 years had finished in the payment plan, is it just a case of waiting.
Sara (Debt Camel) says
defaults drop off 6 years after the default date on your credit record.
Iain says
I have a problem with co operative bank who did not help me during covid 19 outbreak they did do something that they should do making false information on my credit report is overdraft is a payment thing during the covid 19 if so can I take my complaint to them?
Sara (Debt Camel) says
Hi Iain, so you had a problem with your overdraft during Covid-19 and you talked to Co-op and they didn’t help? Can you say more about what happened and what the have done to your credit record?
Nigel says
I took a payment hoilday with nationwide for 6 months
What they said numerous times is you can rewrite the loan after payment hoilday finishes, or continue same as before.
Now what they have done told me my loan been written off, either pay full amount back or start a Dmp with them.
Also theta added on internel arrears so my arrears have gone from 700 to 2000.
They also told me they should have never gave me a payment hoilday because of my arrears but they did.
I feel they have been dishonest and don’t all this behind my back would have never took a payment hoilday, if I knew this.
What’s by next option?
Sara (Debt Camel) says
So you had arrears before lockdown?
If they hadn’t given you a deferral, what was your realistic alternative?
were you making the normal payments at lockdown?
it sounds like they are offering you a fair option, what is wrong with it?
Nigel says
I had 700 arrears before the referral
Without payment hoilday I could have made the Monthley payments 200 a month and small amounts towards the arrears 50 a month
Just checked my credit file they just added on a defult
Sara (Debt Camel) says
Is this surprising? They shouldnt have done that is your only arrears were from the coronivius payment deferrals, but you had arrears before that.
Isnt a DMP a good option for you now, to pay this back at an affordable rate?
Nigel says
Yes because they never informerd me. they never warn me,
They already admitted their error they should have never gave me a payment hoilday.
Before I had 4 missed payments but doesn’t mean they just put a defult on
They did payment hoilday and I was happy thinking back to normal, they treated Pauline the hoidlay as missed payments
No dmp is not as my credit file is my main issue, and I can pay a bit more to cover arrears.
Sara (Debt Camel) says
A creditor can register a default if you are 3-6 months in arrears. You were 4 months in arrears so it is going to be hard to dispute it.
They aren’t actually obliged to warn you before adding a default to your credit record. And I can’t see their error has done you any harm – presumably you needed the payment holiday?
You can try to complain and say this unfair, they never told you about the default, they say they should never have given you a payments holiday and you are happy to set up a payments arrangement if they remove the default. You may not have a strong case, but it’s worth a try.
Nigel says
At one point I even called them to clear ALL the arrears before payment holiday, they said I will just have to wait till it’s over as arrears have been added.
I used that money now to clear other debts but I can still afford their Monthley payments.
The error has done me huge harm considering I want to buy a house. A default is the worse thing. At the time I took payment hoilday I was been scammed by a friend but would have found money to pay them.
Yeah I’ve complaimend so will wait and see
Sara (Debt Camel) says
OK, but the missed payments even without the default or subsequent payment break would still be causing your problems. if you are realistically in a position to buy a house, then you should be able to clear these arrears.
Nigel says
if I never had the hoilday, there would be no defult, and it was one of many errors they made by giving me paymnet hoilday
1)payment hoilday
2) extended payment hoilday
3) on every single call 4-5 calls saying I could rewrite or go back to before.
4) when I called up to pay all the arrears before the payment hoilday , they said it won’t make a diffence, and I can’t just call us up once payment hoilday has finsihed
The person below the manager said I have a strong case,
Nigel says
Thanks, forgot to ask , will a default affect my bank job And I don’t want to stay in same department for 6 years I was gona apply to move next year
I think the strongest argument I have is I literally called to pay of my arrears and asked about credit file,she said wait till you receive letter, and pay of then, credit file won’t make a difference as we gona rewrite anyway.
if I knew about the defult was on the way I would have paid off ALL the arrears including internel, this would have never happend now I’ve used that for other debt but could still pay 700 arrears before payment hoilday
Also I made complainet over the phone if it is written does that make a diffence.
As I’ve read somewhere, only coresponden in writing
Sara (Debt Camel) says
So you know all the arguments to make. I am sure Nationwide will treat this as a proper complaint even though it was made over the phone.
I don’t think many finance jobs would be affected by one default, but obviously I can’t say anything about yours.
Adam says
Hi Sara,
Was fully up to date on payments for my AMEX, Barclaycard & Capital One up until March this year – my business was wrecked due to COVID as it’s export & I was completely priced out of the market in the sector. In the end missed payments on all three although taking the 3 month breaks – still my business was suffering after & I couldn’t make payments. During this time I suffered two deaths in the family from COVID, & fell ill myself to have only recently recovered.
All three cards now have defaulted (November), to a total of £6000.00
If I were to pay all 3 in full, would I have a leg to stand on to dispute the defaults with the lender? COVID has been a very tough time & now to have my credit ruined is just the icing on the cake… I also had no access to letters due to social distancing restriction (such a mess).
Thanks
Sara (Debt Camel) says
So you took two 3-month payment breaks on all the cards?
Adam says
Yes, on both other than the Capital One which I’ve offered a one off voluntary payment.
Sara (Debt Camel) says
So you should not have had missed payments or defaults recorded for those 6 months. But if you since missed payments then they can be recorded and a default can be added when you are 3 months behind – which would be Sept – Oct – Nov?
When the payment breaks came to an end, did you talk to the lender about not being able to resume normal payments?
Sandra says
Due to the Coronavirus I had to take a three month payment holiday with Studio catalogue. I then went onto a Payment Arrangement five months ago. My Credit File has now been badly affected with 5 x missed payments from Studio. I have contacted Studio to ask why they have marked my Credit File with missed payments and have been told this is because I am on a payment arrangement. Is this correct? I have made all the monthly payments on time.
Could you please let me know your thoughts Sara. Many thanks.
Sara (Debt Camel) says
being in a payment arrangement will harm your credit score because you are paying less than the contractual amount.
Is this your only problem debt? Are you behind with any bills?
Sandra says
Thank you for your reply Sara, Should the Credit File be marked as Arrangement (AR) instead of missed payment?
Sara (Debt Camel) says
yes but that won’t make much difference to your credit score. What are the rest of your finances like?
Sandra says
I am managing everything else ok, this is the only one I’m struggling with. The missed payment markers have taken 112 points off my credit score. Thanks again Sara.