Finance experts TotallyMoney have warned that those experiencing financial hurt due to coronavirus could see their credit scores suffer for six years as protections are taken away for over quarter of a million people still on payment holidays.
A blanket end on 31st October to granting payment holidays on mortgages, credit cards, loans, and overdrafts will see lenders contact the 323,700 people who took advantage of the protections. This will be to discuss repayment options.
Although lenders must make assessments on a case-by-case basis, in most instances they will likely take monies owed from payment holidays, add this to the outstanding balance, and recalculate monthly payments accordingly.
However, anyone unable to make full repayments as agreed with lenders will probably see missed payments and defaults appear on their credit report, TotallyMoney warns.
Vulnerable consumers will therefore be left reeling from these financial effects of coronavirus for over half a decade, as missed payments and defaults remain on credit reports for six years.
This will make it significantly harder to get accepted for credit cards, loans, mortgages, mobile phone contracts, and even paying for utilities by direct debit. It could also drive up the cost of car insurance.
The end of payment holidays also comes at an inopportune time, TotallyMoney says, as it coincides with the end of the furlough scheme.
Despite the chancellor’s new Job Support Scheme, there are ever-growing concerns that the dramatic drop in support compared with what was offered at the beginning of lockdown will mean many won’t be able to afford to live day-to-day, as well as keep up with full repayments.
It is suggested that a devastating 12 million people have low financial resilience, meaning they struggle to pay bills and loans.
Furthermore, with unemployment at a three-year high and over half of people concerned they’ll lose their jobs over the next 12 months, fears are intensifying that consumers will have no choice but to take the hit to their credit scores.
TotallyMoney CEO, Alastair Douglas, said: “With so many trying to make ends meet while protecting their health, the last thing anyone needs right now is more worry about how their finances could be affected further by these drastic changes.”
“That’s why it’s unfortunate that consumer credit scores will suffer for such a long time for anyone unable 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.”
“In the meantime, 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 future.”