Taking a break from the payments? Thousands of people are taking a payment holiday. But does a payment holiday will protect your score during COVID-19?
The UK Government announced a nationwide lockdown last month. Since then, people have been dragged neck-deep into a financial turmoil. A number of employees are facing hardships due to reduced working hours, resulting in pay cuts. On the other hand, there are some who have lost their employment. In such a situation, people primarily just have their savings to fall back on. A study by savings comparison ‘Raisin’, revealed that approximately a 3rd of the UK’s citizens have savings of up to £1000. The study also calculated the average savings of an individual in the UK as £9,633.20, where the maximum average savings as seen in London amounts to £28,978.40.
Considering this disparity in average savings across the UK, it imperative that people hold on to whatever little they have and create a budget where necessary. However, a major factor affecting this budget could be loan and credit card repayments. Loan repayments are difficult as it is, even with a steady income and missing one can have a negative impact on your credit score. But now that people are having to face salary reductions and worse yet, unemployment, how do they keep with these repayments? More importantly, how can save their credit score from the downward spiral?
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Loan Amount
£4000 -
£20000
Norwich Trust
Loan Term
1 -
10 years
4.8/5
Representative APR
31.90%
Minimum Age
21 Years
Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
4.8/5
Norwich Trust
Loan Amount
£4000 -
£20000
Loan Term
1 -
10 years
Representative APR
31.90%
Minimum Age
21 Years
Minimum Income
£2000 per month
Representative Example: £12,000 over 66 months, 31.9% APR fixed. Monthly payment £358.22 Annual interest rate 28.01% fixed. Interest payable £11,642.52. Total repayable £23,642.52.
Loan Amount
£5000 -
£100000
Evolution Money Loans
Loan Term
1 -
20 years
4.5/5
Representative APR
28.96%
Minimum Age
18 years
Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00
4.5/5
Evolution Money Loans
Loan Amount
£5000 -
£100000
Loan Term
1 -
20 years
Representative APR
28.96%
Minimum Age
18 years
Minimum Income
Not mentioned
Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00
Loan Amount
£1000 -
£10000
1Plus1 Guarantor Loans
Loan Term
1 -
5 years
4.4/5
Representative APR
39.90%
Minimum Age
18 years
Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
4.4/5
1Plus1 Guarantor Loans
Loan Amount
£1000 -
£10000
Loan Term
1 -
5 years
Representative APR
39.90%
Minimum Age
18 years
Minimum Income
Not mentioned
Representative Example: Borrowing £3000 over 36 months with a representative APR of 39.9% (variable),the amount payable would be £134.21 a month,with a total cost of credit of £1831.56 and a total amount payable of £4831.56.
Who can take a Payment Holiday?
- As of last month, the government of the UK announced the provision of a ‘3 month repayment holiday’. In this plan, borrowers who cannot afford to repay their loans due to the ongoing crisis can avail a 3 month repayment holiday. During this period, however, interest in the additional months will contribute towards the entire repayment amount. The UK government also urged banks to reach out to their customers on a case-by-case basis, in order to assist them with their financial situation.
- People facing difficulties paying towards an ongoing debt are encouraged to contact their lender to work out an alternative repayment plan. Similarly, banks are motivating people to get in touch to resolve credit repayment issues. These initiatives by the government are in the interest of safeguarding the financial security of the citizens of the UK. The fact that these provisions take credit score into account, brings a sigh of relief for people, but is everything covered?
How to Protect your Credit Score during COVID-19?
A number of people are struggling to make ends meet, even on a day to day basis, have no option but to apply for an unsecured personal loan. The same applies when you add to your existing credit. Given the current state of affairs, maintaining a decent credit score can be challenging. This is fair because the determining factors of a credit score are ‘payment history’ and ‘amount owed’. These factors help a lender evaluate your history to check for defaults. People with a history of missed repayments or over-usage of credit cards are perceived as potential defaulters. To keep up a good score during these trying times, we’ve outlined some tips that you can follow:
- Enroll on the Electoral Register
If you have defaulted payments in the past, a good way to prove your legitimacy would be enrolling yourself on the electoral register.
- Avoid Making Multiple Loan Applications
You should refrain from applying for multiple applications in a short span of time. This could indicate financial distress as each request you make, gets recorded in the database. An alternative to this is using ‘soft-credit’ checks to determine your likelihood of getting a loan. This also applies to cases where applicants with an existing account, want a new overdraft. Lenders are likely to perform a fresh soft-credit check on such borrowers as well.
- Try Switching to a Credit-building Card
Credit-builder credit cards have a relatively higher interest rate. However, as long as you use them responsibly, it builds a lender’s confidence towards your profile.
- Make Payments towards your Debt
If it is within your means, try and pay as much as possible towards your current debt, in a timely manner.
- Best Practice is to Always Pay Bills
Bill payments that are made in full and well in time, also contribute towards building a good credit score.
Keeping your Credit Report in Check
- At the end of the day, it is important to keep calm and layout a budget so that you spend your money effectively. While maintaining a good credit score should be the focus, staying on top of your credit report is equally important. Keeping track of your credit report by requesting a one-off free credit statutory report is a good start. You can use services offered by Equifax, Experian, and TransUnion to request a credit request. As you do so, put your credit report under scrutiny to point out any discrepancies – questionable details or errors. Unfamiliar credit inquiries on your account can also indicate an attempt to identity fraud.
- To sum up, it is important to keep yourself informed about the government’s initiatives to get through this financial turmoil. In these catastrophic times, losing your employment can take a serious toll on your emotional health. Your credit score does not have to add to your hardships. If you struggle to make repayments, a pro-active approach will help you in creating a better understanding with your lender. Banks are especially supportive of people struggling financially, during this pandemic. It is important that you seek help before falling behind your payments so that the concerned authorities can lend a helping hand. If you take the necessary measures, it is possible to end up on the other side of the storm with a good credit score.
