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Taking a payment holiday should not affect your credit rating

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Written by: Christina Hoghton
01/04/2020
Three major credit reference agencies have put measures in place to prevent borrowers damaging their credit record by taking a payment holiday during the coronavirus crisis.

The three major credit reference agencies (CRAs), Experian, Equifax and TransUnion have confirmed that consumer credit scores will be protected when people have agreed ‘payment holidays’ in place as a result of the COVID-19 pandemic.

Payment holidays refer to a pause agreed between an individual and their lender on regular mortgage or loan payments.

Homeowners impacted by the crisis can ask their mortgage lender for a payment holiday of up to three months (for both residential and buy-to-let mortgage customers).

But many were concerned this could damage their credit record, making it harder for them to access future borrowing.

However, this won’t be the case.

Emergency payment freeze

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

In addition to the government guidance on mortgages, 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. These are all covered by the CRA emergency payment freeze agreement, which means that any impact to your credit score will be minimised.

Your questions answered

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 began, your account 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 began will continue for the duration of the freeze. During the freeze, the monthly payment amount shown on your report will stay 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 won’t be damaged. Please 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, an individual’s credit score will be maintained or frozen for the duration of the agreed payment holiday. CRAs 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?

If a consumer falls behind without a payment freeze, then the usual CRA position will apply – a worsening status is likely to mean that your credit file is impacted, which is why it’s so 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 couldn’t get through. Could I just cancel my Direct Debit?

Until you have discussed your circumstances with lenders, try to keep making regular payments if you can. We strongly discourage pausing payments, for example by cancelling Direct Debits, without first agreeing this with your lenders and providers. Unauthorised missed payments are bad news for credit scores and could therefore affect your chances of getting credit in the future.

Banks, lenders and other providers have been understandably busy trying to help their customers at this difficult time. To help, several mortgage lenders have recently updated their websites to allow customers to apply to pause their payments online.

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