Credit Scores will be protected during the Covid-19 period when payment holidays are being taken, say the three main credit reference agencies, Experian, Equifax, and TransUnion.
During March 2020, the Government announced that homeowners impacted by the current crisis could ask their mortgager lender for a payment holiday of up to three months, for both Residential and Buy-to-Let customers. The agencies are implementing a special measure called an `Emergency Payment Freeze’ to ensure that credit scores are protected for the duration of an agreed payment holiday. Our understanding is that individual credit reference files will not show a missed or late payment, which is of critical significance to keep credit scores intact, and whatever the individuals score level is, this will not be negatively affected and remain unaltered until after the `freeze’.
In addition to the Government guidance on mortgages, lenders may also be able to make special arrangements across other forms of credit. These may include payment holidays, reduced payments, paused payments or increased credit limits, all covered by the `freeze’ arrangement.
However, what is not known when moving forwards, is how lenders will view the borrowers needs when having taken a payment holiday. The individuals score may not be affected, but the diligence of heightened underwriting and assessment of lender risk may come in to play. Lenders do not like risk, they do not like lending to those who have demonstrated an inability to maintain payments.
The remainder of 2020 will certainly become the New Normal, as was the effect of the 2008 crash.
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