Borrowers taking agreed ‘payment holidays’ will have credit scores protected

Borrowers agreeing temporary “payment holidays” with lenders due to the financial impact of coronavirus will have their credit scores protected, the UK’s three major credit reference agencies have confirmed.

Experian, Equifax and TransUnion said that consumer credit scores will be protected in cases where lenders have agreed to push the pause button on people’s regular loan repayments.

Earlier this month, the Government announced that home owners badly affected by the crisis can ask their mortgage lender for a payment holiday of up to three months.

To help people applying for payment holidays, credit reference agencies are implementing a measure called an “emergency payment freeze”. This ensures that someone’s current credit score is protected for the duration of an agreed payment holiday.

Jonathan Westley, chief data officer at Experian said: “Many lenders are offering payment holidays or other arrangements to help people who have been affected by the outbreak.

“Through this new industry agreement, Experian, TransUnion and Equifax are helping protect people’s credit scores during these difficult and unprecedented times.”

Lenders may be able to make special arrangements across other forms of credit, which may include a payment holiday, reduced payments, paused payments or increased credit limits.

The major credit reference agencies said these are also covered by the CRA emergency payment freeze agreement, which means any impact on credit scores will be minimised.

Here is information from the credit reference agencies on how the initiative will work: 

 – How will a payment freeze be reflected on my credit report?

If you and your lender agree an emergency payment freeze, the payment status of your account with that lender will not get worse while your payments are paused.

For example, if your account was up-to-date before the freeze started, it will continue to show as up-to-date until the freeze ends.

If you were already behind with payments, the level of arrears before the freeze started will continue for the duration of the freeze. During 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 you agreed a payment freeze with a lender or provider will not be recorded on those accounts or anywhere else on your credit report.

– How will a payment freeze affect my credit score?

Agreeing with lenders to pause your payments for a while should not result in missed payments building up on your credit report.

This should generally mean your credit score will not be damaged.

But bear in mind that, as well as the payment status of your accounts, credit scores also take account of many other factors, such as your total level of unsecured debt (for example, the balance of any credit cards, personal loans and overdrafts) and how heavily you are using 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, someone’s credit score will be maintained or frozen for the duration of the agreed payment holiday.

Credit reference agencies cannot guarantee that payment holidays will not impact a consumer’s ability to get credit in the future, as lender policies will be different across the industry. This should be discussed with your lender directly.

– What if I fall behind with payments without an agreed payment holiday in place?

The usual credit reference agency position will apply – a worsening status is likely to mean that your credit file is impacted, which is why it is important to have early conversations with your lender if you think you may have trouble meeting any of your repayments.

– I tried to call my lender but could not get through. Could I just cancel my direct debit?

Credit reference agencies strongly discourage pausing payments without first agreeing this with lenders and providers.

Unauthorised missed payments are bad news for credit scores and could therefore affect your chances of getting credit in the future.

To help, several mortgage lenders have recently updated their websites to allow customers to apply to pause their payments online.