Credit score is going to be increasingly important as our economy begins to shrink, and lenders get that much more cautious. Coronavirus has disrupted our lives to some extent, one way or another. Most people are unable to work, and their finances maybe tested months ahead.
The Government arguably is doing as much as they can, to help businesses, renters, and homeowners. The fact remains Coronavirus lockdown means many will not be able to pay bills, mortgages, rent or loans.
Will a mortgage holiday affect my credit score?
Some landlords are concerned and wonder how the Coronavirus will affect their credit score if they are unable to pay their mortgage as tenants default in paying the rent?
It would be unjust if credit rating agencies did not make some allowances for this extraordinary coronavirus period for humanity.
Credit agencies will record a default as a negative for anyone defaulting on a utility bill, loan, mortgage or rent and credit score adjusted accordingly.
Three major UK credit reference agencies, Equifax, Experian, and TransUnion have agreed to a special measure called an “emergency payment freeze”.
A special measure called an “emergency payment freeze”
Only, if a temporary arrangement has been agreed, like a mortgage holiday, or terms with a utility provider, then these will not be recorded as a default under the “emergency payment freeze”.
Anyone seeking a payment plan due to financial difficulty should obtain clarity if the payment plan affects their credit rating.
Jonathan Westley, chief data officer at Experian, said: “These are challenging times. While everyone is rightly focused on staying safe and healthy, we know that many people are also concerned about the impact on their income.
“Many lenders are offering payment holidays or other arrangements to help people who have been affected by the outbreak. Experian, TransUnion and Equifax will then make sure that the agreement is reflected in your credit reports so that your score is not changed by any payment holiday you agree.”
Most lenders will agree on a repayment holiday, and credit agencies will not treat this as a negative on the credit score.
However, most are not all, which leaves some, who potentially run the risk of having their credit score degraded if they are unable to keep up repayments.
Credit agencies across the board should consider vacating the distortion caused by the Coronavirus for the relevant period.
How can I protect my credit score when using a payment holiday
To ensure your credit score are safeguarded, you should take these steps:
Ensure you continue to make regular payments until you have discussed your position with your lenders.
Agree with your lender whether you should use a payment holiday, lower payments, or raise credit limits.
Agree the length of time the special measures should last. It could be up to three months.
Once you have this agreement in place, Experian, Equifax, and TransUnion will apply the ’emergency payment freeze’ to the relevant credit record on you.
Ensure you have an agreed ’emergency payment freeze’ with each one of your lenders whom you might not be able to pay before you reach the stage of missing a payment. If you miss a payment, you could damage your score.
Check your credit report and score every month and if you spot mistakes or arrears building up while a freeze was agreed, contact the lender first. If that does not resolve the situation, you should contact the CRA.
You must not just cancel direct debits as that can result in a missed payment being recorded on your report. A missed payment can take 130 points off your Experian credit score.
Take the followings steps to improve your credit score:
- Get on the electoral register.
- Always pay your bills
- Pay down your debt.
- Do not make too many credit applications.
Source: British Landlords Association
Author: Sarah Featherstone
Date: 25th of April 2020
