Credits scores & payment holidays

Have you heard of a payment holiday? They are agreements you can make with your lender to take a break from your repayments on a debt for a set period of time. Special payment holidays were made available during COVID-19 lockdowns and millions of people took financial breaks while they couldn’t work. Although these special payment breaks have since been stopped, it is still possible to get a regular one. But do payment holidays affect your credit report? In this blog, we’re unpacking the payment holiday baggage.

Do payment holidays affect mortgage applications?

Yes, since general (non-pandemic) payment holidays appear on your credit report, they can have an impact on your mortgage application. Unfortunately, the same goes for payment holidays offered during the COVID pandemic. Although the COVID-19 payment holidays won’t show on your credit report, they may be flagged in other information you give to the mortgage provider.

It’s different if you received a payment holiday due to the pandemic though. Agreements made with lenders between 17th March 2020 and 31st July 2021 don’t show on your report. But if you’re trying to strengthen your history to specifically apply for a mortgage, read on!

What do I do if a payment holiday harms my credit report?

Sometimes you might have no choice but to take a payment holiday or agree tailored support from your lender. Doing so might hurt your history  but you do have options to help solve the problem once you’re back on track with your repayments after the break. 

If you feel more stable handling your credit after a payment holiday and you’re ready to address the effect it had on your report then a Loqbox membership could be a good place to start. We can help you prove to the three main credit reference agencies (Experian, Equifax and TransUnion) that you are able to make regular repayments which can help improve your report. You can find out more about how a membership can help you work towards financial freedom here.  

Improvements to your credit score are not guaranteed. Missing payments to Loqbox or other credit accounts may harm your score.

How do payment holidays work?

While it’s possible to get time off from making your loan repayments, it’s really important to know that your interest charges continue to be added during that time.  As a result, your total balance could increase during your payment holiday and bring your minimum repayments up with it. This means  you have more to pay each month once your payment holiday ends.

So, before you apply for a payment holiday, you need to be really clear of how you are going to make your payments once it ends. Speak to your lender about your situation and work out what will change after the holiday is over. A break might feel like a weight off your shoulders but it’s only temporary. Will things be worse for you when you start making payments again?

Payment holidays might seem scary, but they are better than not making payments without telling your lender, which would be recorded as a missed payment. Missed payments hurt your report, so speak to your lender about your options before that happens. 

How do I get a payment holiday?

If you want to take advantage of a payment holiday you need to speak to your lender. They will want to know why you need one and will probably ask questions about your finances — to work out how and when you will be able to start paying money back again — to make sure it’s the best idea for you.

Your lender has the final say in whether you can have a payment holiday. They don’t have to say yes if they don’t feel it’s the best thing for you to do right now. However, even if they aren’t willing to offer a payment holiday, they might offer you some tailored support — like reduced payments — to help you.

What other options do I have if I’m not given a payment holiday?

The first thing you should do if you are struggling to pay off any loans, credit cards or mortgages that you have is speak to the lender

They will be able to look at your circumstances and offer what’s known as tailored support. This can change depending on the type of credit you are having problems with.

‍Tailored support will likely show up on your credit report for three years after the payment holiday arrangement ends, and your credit agreement may show as being in ‘arrears’ on your credit report. Have a good chat with your lender about what options you have and how to minimise the negative impact on your credit report.

If you’re struggling with your mortgage payments

Your mortgage provider may be able to look at pausing or reducing your monthly payments, switching to interest-only repayments, or maybe even changing the terms of your mortgage.

If you are finding it difficult to meet your loan or credit card repayments

Tailored support from your lender could involve a pause on your account, reducing your monthly payments or building a repayment plan. As we mentioned above, this will likely show on your credit report so this is another topic to discuss with the lender.

If debts are getting you down, there is help at hand

Debt is a real part of life that many people are dealing with on a daily basis. If you’re struggling with debt and feeling stressed about your repayments, don’t suffer in silence —  the debt charity StepChange can offer you free and confidential advice.