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Mortgage UK: How to protect your credit rating as payment holidays end in 3 weeks time

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Mortgage payment holidays were among the first support measures launched by Rishi Sunak last year and eventually, this support was extended to a range of financial obligations. It is possible to freeze payments on credit cards, store cards, and various other debt-themed products.

However, these payment holidays can only be claimed up to March 31, exactly three weeks away.

While this may seem like plenty of time, research from Credit Karma warned applications could take weeks for approval.

As such, they urge consumers to take action now to take advantage of the concessions and make sure their finances are not affected.

Akansha, Head of Partnerships at Credit Karma, commented on this: “Credit reporting agencies have agreed that any consumer using an ‘emergency payment freeze’ for those affected by coronavirus won’t see their credit score impacted. So for those in financial distress it’s a key lifeline. But these arrangements are rarely put in place overnight.

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“You’ll need evidence that your repayment holiday has been approved by your lender, and this can take time.

“Borrowers should try to engage in a dialogue with their lender as soon as they’re concerned that they may miss a payment, as defaulting will have an impact on your score.”

In light of this, Akansha shared guidance on how a conversation with a bank or lender should start before the application deadline approaches:

  • Pick up the phone – as social distancing sees branches close down, speaking to your bank on the phone is the most effective way to start a dialogue on getting a repayment break
  • Get a written agreement – try to get all agreements from your lender in writing to avoid being caught out. If you notice that missed payments are having an impact on your credit score you may need to evidence approval from your lender
  • Think ahead – getting approval for your repayment holiday can take time. Try not to wait until you’re out of money to apply for a break – if you leave it too late you may run out of time, which can have an impact on your credit score

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While payment holidays have been extended a number of times in the past, it now appears that the Government will be ending lockdown restrictions over the coming months, meaning consumers may have to face their finances head on by the summer.

Akansha also commented on this: “For those who are concerned about what their financial future may hold, now is the time to take action and find a way of managing debts that they can’t keep up with, as missed payments and loan defaults could have a long-term impact on their ability to borrow in the future.”

Fortunately, Credit Karma collected some guidance for British people to follow if they’re affected by the end of payment holidays:

  • Know your options: call your bank or credit card provider, as it may offer flexibility or changes to your repayment plan, including lower interest rates, smaller minimum payments and/or waiving some penalties. Though it’s worth noting that credit scores will no longer be protected after the payment holiday ends, and any changes to your agreement may be reported to credit reporting agencies by your lender.
  • Minimise a missed payment: if you do miss a payment, you can minimise its effect, as providers typically won’t report a late payment to credit bureaus until it’s 30 days past due. If you can make your payment before the 30-day mark, you may not have to worry about the late payment being added to your report. The longer you wait, the more serious the consequences will likely be. Acting immediately might help you avoid the worst parts of a missed payment.
  • Don’t default to swiping your credit card: if you know you’ll need to spend more than you currently have to make ends meet, you may resort to using your credit card. However, pay attention to the interest rate on your credit card and take stock of your options to ensure you’re not racking up additional interest and fees. For example, if you’re looking for an alternative, oftentimes personal loans will have lower interest rates than credit cards. Or you can look for introductory offers of low interest or even 0% interest credit cards.
  • For those that may live payday to payday, think twice before taking out a payday loan. Payday lenders tend to prey on those in desperate circumstances like these and these loans can be the beginning of a long cycle of debt. A payday loan may carry unfavourable terms, including high fees and interest rates, so before you borrow money, take a hard look at the fine print. Instead, look into other options available to you such as a personal loan.
  • Be wary of ‘buy now pay later’ deals – It might seem helpful to split or delay payments with these sorts of services, especially when your cash is limited. But this can make it much easier for people to buy more items and worry about the repayments later which in some cases could add up to unaffordable debt levels. Plus, point of sale lending means missing out on credit card rewards or cashback.

Recently, the FCA updated its guidance on mortgage holiday rules, detailing firms should not enforce repossessions, except in exceptional circumstances, before April 1 2021.

The FCA published draft guidance for firms from April 1 to ensure that mortgage customers whose homes may be repossessed are treated fairly and appropriately, particularly where there are risks of harm to customers who are vulnerable as a result of coronavirus.

In January, the FCA updated the credit Tailored Support Guidance for consumer credit products which allowed firms to repossess goods and vehicles from January 31 2021, but only as a last resort.

The FCA also urged consumers to remember that all payment deferrals will end by July 31 under the current rules.

Consumers are also urged to “think carefully” about whether they need to take a payment deferral.

Banks and other financial companies are required to provide tailored support to customers struggling with coronavirus, which may be more suitable for their needs in the long-term.

From April 1, consumers who are newly impacted by coronavirus, or find themselves impacted again (whether or not they have previously had a payment deferral), should receive support from their lender in the form of tailored support.

This could include short-term support such as a payment deferral, if it is appropriate, although this would be subject to normal credit reporting rules, whereas credit ratings are protected at the moment.

Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to [email protected] 



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