A quarter of people seeking mortgage payment holidays are cancelling the direct debit without getting approval from their lender – leaving them in danger of harming their credit score.
That’s according to a study which also revealed some people were using payday loans to make ends meet and relieve Covid-19-related financial concerns whilst others were dipping into their savings or borrowing from family or friends.
Credit Karma, a credit report provider, which carried out the research, thinks this is down to lack of knowledge about taking mortgage holidays.
Indeed, its research found one in five didn’t think they would be eligible for the break and a similar number simply didn’t know where to start when it came to accessing this financial relief.
It also emerged that most borrowers in financial distress have yet to contact their bank or lender to seek payment relief. The study found more than three million Brits had missed regular payments already because of coronavirus disruption and nearly five million expect to do so.
But, with the approval for mortgage holidays typically taking a week or more, Credit Karma said borrowers needed to act quickly to prevent any damage to their creditworthiness over the long term.
Akansha Nath of Credit Karma, said: “Credit reporting agencies have agreed that any consumer using an ‘emergency payment freeze’ for those affected by coronavirus won’t see their credit score impacted. So for those in financial distress it’s a key lifeline. But these arrangements are rarely put in place overnight.
“You’ll need evidence that your repayment holiday has been approved by your lender, and this can take time.”
Her advice is that borrowers should try to engage in a dialogue with their lender as soon as they’re concerned that they may miss a payment.
Defaulting, Nath explained, would have an impact on your score and she offered advice on starting a conversation with a bank or lender amidst coronavirus confusion.
Pick up the phone – as social distancing sees branches close down, speaking to your bank on the phone is the most effective way to start a dialogue on getting a repayment break
Get a written agreement – try to get all agreements from your lender in writing to avoid being caught out. If you notice that missed payments are having an impact on your credit score you may need to evidence approval from your lender
Think ahead – getting approval for your repayment holiday can take time. Try not to wait until you’re out of money to apply for a break – if you leave it too late you may run out of time, which can have an impact on your credit score
If you’re concerned about your credit score you can check it for free at CreditKarma.co.uk.
