With the government’s Covid-19 financial support schemes coming to an end this month, UK lenders will soon start contacting hundreds of thousands of borrowers to discuss their plans for repaying any money owed from payment holidays.
This means that consumers who have experienced financial difficulty throughout the Coronavirus pandemic and who are still experiencing this, may unfortunately see their credit score plummet, and this impact on their credit report could last up to as much as six years, according to credit experts at TotallyMoney.
Here, we explain how consumers’ credit scores could be affected and what you can do if you have missed payments or defaults on your credit report.
Financial support for Covid-19 victims is ending – What happens now?
At the beginning of the Coronavirus outbreak when lockdown measures were first put in place, the UK’s Chancellor introduced payment holidays for homeowners so that they could have a 3-month break on payments – specifically if they were impacted in some way by Covid-19.
Since then, insurance companies and other firms have provided similar support to help those suffering financially as a result of the crisis.
The deadline for applying for payment holidays is 31st October 2020, meaning that those wishing to apply for one to have a short-term respite have just two more days to do so.
After this date, lenders will begin to contact 323,700 people who have made use of payment holidays this year, in order to discuss how they intend to repay it – based on their personal situation.
This year, Halloween also marks the date when the Coronavirus Jobs Retention Scheme (more commonly known as the Furlough scheme) will come to an end and instead, be replaced by the new Jobs Support Scheme.
Despite this new support scheme, thousands of workers’ salaries will still be significantly reduced. The UK’s current unemployment rate is also the highest it’s been in three years, and many workers across the country fear losing their job at some point in the next year.
On top of this, Banks are no longer expected to provide a £500 overdraft to people who are currently facing financial hardship due to Covid.
While financial support is now limited, this means that thousands of people are still likely to be financially impacted as a result, which will lead to difficulty in making repayments for payment deferrals and/or other credit, subsequently increasing the chances of missing payments and incurring defaults on their credit report – which will ultimately bring credit scores down.
How will I be affected if my credit score drops?
All lenders are expected to assess each individual case separately, but in the majority of cases, it is likely that they will add the amount owed from payment holidays onto their overall balance and recalculate new monthly payments based on that.
With many people still affected financially as a result of Covid-19, there is an increased risk of people being unable to make repayments – if this happens, any defaults or missed payments will be recorded on their credit report, and they will remain on there for six years.
While this can make your credit score drop, any negative markings on your report is likely to put off potential lenders in the future.
If you want to apply for a credit card, loan, mortgage or mobile phone contract, the lender will check your report and they will see you as a high-risk borrower if you have missed payments in the past, meaning that they will either reject you for credit or offer you a more expensive deal with higher interest rates.
While credit scores are currently vulnerable and subject to change depending on each personal situation, it is important to act now and check yours to keep on top of your finances.
What if I have missed payments or defaults on my credit report? – Advice from TotallyMoney
Alastair Douglas, CEO of TotallyMoney, is hoping that this six-year impact won’t apply to people who’ve been significantly impacted by the Coronavirus pandemic:
“It’s unfortunate that consumer credit scores will suffer for such a long time for anyone able to keep up with their repayments. A lot has changed over the past three months, so a reassessment to see what more can be done to protect the public would be ideal.”
For consumers, he advises the following:
“If you see any missed payments or defaults on your credit report, you can contact each credit bureau and add a notice of correction to your file. While this won’t remove the missed payments or defaults, it does give you a chance to explain any mitigating circumstances that may have led to them, such as coronavirus.
Lenders must then take this into account when you apply for credit, which could help you get accepted in the future.”
- Learn more: How to Improve Your Credit Score – 10 Hacks
To see how your current credit score is looking and to check for any missed payments or defaults on your credit report, we recommend using Checkmyfile, a multi-agency credit-checking website.
Checkmyfile uses all four credit reference agencies in the UK to give you a more detailed report than anywhere else. You can easily identify any errors and contact the necessary agency to address the fact that you have been financially impacted this year due to Covid-19.
Signing up is free for the first 30 days, but you can cancel any time if you do not wish to pay the monthly fee for its useful services.