Payment holiday alert: Consumers unaware of potential costs – Experian provides warning

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PAYMENT freezes or holidays have been one of the main tools used by the government and other regulatory bodies to combat coronavirus. These freezes now cover a wide range of financial concerns but recent analysis reveals that many people in the UK may still not fully understand them.

Mortgage holidays were among the first support measures announced by Rishi Sunak and they were quickly followed by additional freezes. The FCA went on to extend such rules to credit cards, car payments and other debt obligations.

Understandably, as these schemes were rolled out many consumers in the UK expressed concern on how they may affect their financial standing or credit scores.

The FCA and other institutions such as Experian stressed that utilising these schemes would not impact a credit history but it appears that that message is still being missed.

Recently, Experian conducted a survey of 2,035 UK nationally representative participants which found a worrying level of confusion.

The results detailed that while most British people may have increased their financial awareness during lockdown, there is still a sizeable portion who are somewhat lost.

The research highlighted that:

  • 35 percent of British people wrongly believe that taking a payment holiday as a result of the pandemic could impact their credit score.
  • Nearly half (46 percent) are not sure or don’t think that interest will continue to be charged if a payment holiday is taken – something that would in fact happen for the duration of the payment holiday.
  • Almost one in five (18 percent) Brits have already cancelled a direct debit during the pandemic before speaking to a lender, which can lead to penalties on their credit score.

James Jones, the Head of Consumer Affairs at Experian, commented on these troubling findings: “It is essential that people discuss their circumstances with their lenders if they are struggling, certainly before cancelling direct debits.

“Unauthorised missed payments can lead to penalties and impact your chances of getting credit in the future.

“Where payment holidays are agreed, interest will still be charged meaning subsequent payments are likely to increase.

“Therefore, it’s advisable that where people can continue to make payments, they should continue to do so.”

Consumer credit scores have been protected from these issues since March.

At the time, the UKs three major credit reference agencies (Experian, Equifax and TransUnion) came together to agree on an “Emergency Payment Freeze” plan which ensured credit scores would remain untouched.

When the plan was announced Jonathan Westley, Experian’s Chief Data Officer, provided these additional comments: “In addition to the Government guidance on mortgages, lenders may be able to make special arrangements across other forms of credit, which may include a payment holiday, reduced payments, paused payments or increased credit limits.

“These other forms of credit are all covered by the CRA emergency payment freeze agreement, which means that any impact your credit score will be minimised.”

The same announcement, which can still be found on Experian’s website, provided advice and support on some frequently asked questions that consumers may have.

These questions included:

  • How will a payment freeze be reflected on my credit report?
  • Will the payment freeze be recorded anywhere on my credit report?
  • How will a payment freeze affect my credit score?
  • Could the payment freeze impact my ability to get credit in the future?
  • What if I fall behind with payments without an agreed payment holiday in place?
  • I tried to call my lender but couldn’t get through. Could I just cancel my Direct Debit?
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