Many of you will be wondering, and probably worried, about how your credit score is going to be impacted by the coronavirus crisis. Mortgage lenders have already agreed to allow 3-month payment holidays with no negative credit file implications, but what about all of the other lenders? And what do you need to do?
If you’re going to struggle, talk to your lender
Very much like the mortgage payment holidays, your lenders will only know there’s a problem if you tell them. Not everyone has been financially impacted by coronavirus, so they won’t assume that everyone needs help.
Talk to your lender and explain how you’ve been affected. Ask them for a break from your payments if you need it. A lot of the major lenders (high street banks) have committed to supporting their customers, either by waiving missed payment fees, agreeing reduced payments or payment holidays, and by providing emergency credit limit increases (where it’s responsible to do so).
If you think you might struggle but you’re not yet 100% sure, speak to them anyway. It’s better that you have something arranged, then if you find that you’re better off than you thought (for example due to changes in your spending) and can afford to pay, you can do so.
How will it work?
We don’t know yet but it’s likely that the interest will continue to accrue on the debt during your payment break. After the break is over, you may need to refinance the agreement to include the missed payments and interest, or they may be added to the end of your loan which means you’ll pay back more interest and your loan will last longer.
You might also have to supply proof of the reduction in your income to your lender/s.
How will this affect my credit score?
The three major credit reference agencies – Experian, Equifax and TransUnion have agreed to use a new status – “emergency payment freeze – for payment holidays agreed in relation to coronavirus which will protect your payment history and won’t affect your credit rating/score. It essentially freezes your credit position for the duration of the payment holiday.
If you were up to date before your payment break, your credit file will continue to show that account as up to date.
If you were already in arrears (or in default), your arrears won’t show as having increased because of the break, so you’ll still show in the same level of arrears after the payment break. If you were struggling with your unsecured debts before the impact of coronavirus, you may benefit from seeking debt advice. You can access online, tailored debt advice here.