Experian, Equifax and TransUnion, the three big UK credit reference agencies, have agreed that having a temporary “payment holiday” with a lender because of Coronavirus problems won’t harm your credit score.
James Jones from Experian says:
“We’re really pleased to have reached an industry-wide agreement on this. Public awareness of credit scores and the role they play continues to grow, so we hope the news that scores will be shielded from these emergency payment freezes will provide some comfort and be one less thing for people to worry about at this challenging time.”
It had already been announced that three month mortgage payments holidays would not damage your credit score. Now this will also apply to unsecured loans, credit cards, catalogues, car finance, payday loans etc.
This is very good news.
I have been saying in Coronavirus – can’t pay your bills and debts? that people should not borrow more money to try to get through this temporary crisis – it is better to ask your current lenders for payment breaks.
But until now, many lenders have not been clear if taking a payment break will result in missed payments on your credit record or a payment arrangement showing – and either of them would have damaged your credit rating.
Worries about this may have put some people off from getting the help they need.
An “emergency payment freeze”
All three Credit Reference Agencies have now agreed that your credit score is protected while you are in an “emergency payment freeze”. That applies if you have a payment holiday/break or are making reduced payments when you have agreed this with the lender.
Now 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 emergency payment freeze ends – no missed payments will show;
- if you already had arrears on the account, the level of arrears will remain the same;
- the fact you have agreed a payment freeze or reduction with your lender will not be shown on your credit report, it won’t look as though you have set up a payment arrangement.
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 – using more credit may harm your credit rating.
If you take out a new loan or credit card or use 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.
You have to have an agreement with your lender
When you have talked to your lender about your Coronavirus situation and they have agreed you can have a payment break, or make lower payments, these become “authorised” changes.
If you just stop paying, or pay less then the normal amount or cancel a direct debit, then that will be reported on your credit report as missed payments. These “unauthorised” changes will harm your credit score.
So the best thing is to talk to your lender as soon as possible.
If you can’t get through on the phone to your lender and it is close to the date you need to pay, I suggest you email the lender or send them a message using an online form BEFORE you miss a payment.
Just say a bit about why your income has fallen and what you would like to happen eg a payment holiday for the next few months. Say you have tried to get through on the phone but can’t. Say you have to cancel the payment but you would like your credit record protected.
The FCA says that lenders must correct your credit record if you have asked for a payment break before missing a payment and operational difficulties at the lender have prevented it being put in places.
But really it is better to get an agreement in place first, if possible!