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Payment holidays were first introduced in March as an assistance measure to assist those who took a financial hit due to the pandemic. Under the rules, Britons could secure a three-month freeze to their payments in a number of areas including their mortgage, credit card and personal loans. But as financial difficulties continue, many have expressed concern about payment holidays, due to any potential implications for their credit score later down the line.
Consumer expert Dean Dunham has sought to alleviate these fears, and has shed more light on the matter.
The first point to consider, he said, is credit reference agencies, and the promises they have made.
Mr Dunham said: “The three major credit reference agencies, Equifax, Experian, and TransUnion, have confirmed that consumer credit scores will be protected when they have agreed ‘payment holidays’ as a result of the COVID-19 pandemic.
“To implement this protection, the credit reference agencies are classifying payment holidays as an ‘emergency payment freeze.
“This ensures that an individual’s current credit score is protected for the duration of an agreed payment holiday.”
Payment holidays are, of course, particularly important to many families still reckoning with financial difficulties.
However, it is important to confirm these formally to ensure a credit score is not affected.
Getting the terminology correct can ensure Britons protect their credit score for the future.
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Mr Dunham continued: “When you ask for a payment holiday, ask your lender to confirm in writing they agree to an ‘emergency payment freeze’ and ask them to confirm that the status of your account will be changed to reflect this.
“To be certain your credit rating will not be affected, you should also write to the main three credit reference agencies to inform them about the emergency payment freeze agreement.
“Enclose a copy of the lender’s letter or email confirming this. Then, check that this has been properly noted on your credit file two weeks later.”
But for those concerned about how many emergency freeze agreements an individual can enter into, there is good news.
Mr Dunham explained there is no current limit on emergency freeze agreements in place.
This means those who potentially need financial assistance in a number of areas can do so with ease, by following the aforementioned steps.
Mr Dunham concluded by offering one final piece of advice to individuals who are in this situation.
He stated Britons should be asking all their lenders about emergency freeze agreements, to determine the options available to them.
Experian, a company Mr Dunham mentioned, have stated a payment holiday generally should not create any blemish on a credit report as long as it is agreed in advance.
Proposals from the Financial Conduct Authority (FCA) have said payment holidays will last in their current form until October 31.
After this point, there will no longer be specific, blanket guidance on what help should be offered.
Instead, lenders are encouraged to adopt a more nuanced, tailored approach, which will suit the needs of their customer on a case by case basis.
You can see more advice from Dean on www.theconsumerlawyer.blog. If you want to ask Dean a consumer law question, you can call him Friday evenings (9-10pm) on LBC Radio – 0345 60 60 973.
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