How Might Coronavirus Affect my Credit Score?
The impact of the coronavirus spreads deeper than health, unfortunately many people will already be experiencing exceptionally difficult financial circumstances and others are expecting those to come.
The word 'furlough' is a new one to most of us and quite possibly so too is 'payment holiday', however as we all look at the security of our employment and finances its important to understand the implications of both the decisions totally outside of your control and decisions you are considering in response to these uncertain times.
The entire financial landscape has seen huge changes due to the coronavirus. The Bank of England have responded by reducing the UK base rate twice within just over a week, taking it from 0.75% down to 0.1%, which is a record low.
What does 'Furlough' mean?
A furlough is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole. A simple analogy for furlough is like being put on the subs bench while your company and the economy work to minismise losses and damage in order to be able to re-introduce you back into your existing employment.
Businesses can claim 80% of their employees' wages from the government, which is capped up to a maximum of £2,500 per person, per month before tax: It's equivallent to a £30k per year salary. The company can choose to top up this pay, however the act of being placed on furlough is normally an indicator of the companies financial situation and is likely to be a rarity.
The chances of catching coronavirus are still unclear however if you have to take time off work because you’re ill, it is possible that you will need to rely on Statutory Sick Pay (SSP), Universal Credit or Employment and Support Allowance. With all of these options they are likely to be considerably less money than you’re usually used to living on at the moment.
What is a 'payment holiday' and how do I request one?
A payment holiday is put in place to offer you a break in payments if you struggle to afford them.
During the coronavirus pandemic payment holidays have been seen offered from banks in response to mortgage payments, Landlords in response to rent arrears and in some cases finance compaines in response to credit payments for vehicles. The payment holiday is normally offered for 3 months.
How will my credit score be affected?
The good news is that Credit Reference Agencies have confirmed consumer credit scores will be protected for people who have agreed 'payment holidays' as a result of the pandemic.
They are implementing a special ruling which is called an 'emergency payment freeze' that will ensure an individual's current credit score is maintained or frozen for the duration of any agreed payment holiday. This comes as great news for many, especially those who have worked so hard to regain a positive credit score or have been working toward achieving a specific score to enable them to discuss credit for a large purchase such as a mortgage, vehicle or home improvements.
Under normal circumstances missed payments usually raise red flags for credit reference agencies and in turn if not resolved quickly will affect consumer’s credit score and limit their eligibility for future credit.
All lenders in the UK use one of three credit reference agencies, Experian, Equifax and TransUnion, so you don't need to worry about starting from scratch when a lender is examining future applications for credit.
The advice for borrowers is to speak with their lender to arrange these repayment holidays. Not everytihng is a given here and a level discretion based on the individual circumstances will apply. If you have a poor history of on time repayments you may find it hard to get a payment holiday, however you should always ask and find out what options are available to you. Speak to the specific finance company that you have taken the credit with, the 'middle man' cannot confirm any decisions for you.
After three months your lender will review your circumstances and then agree with you how to make up the deferred payments.
At Rivervale we work with a number of funders all of whom have different strategies in place. If you are concerned about your vehicle leasing payments and want to discuss a payment holiday, contact us first and we will advise who you need to speak to. Phone 01273 433480 or request a callback at a time that suits you.
The major car finance lenders who offer the usual car finance options such as contract hire or leasing, personal contract purchase and hire purchase are responding to the impact of COVID-19. Many give are offering payment deferrals, reduced payments, payment extensions and payment holidays, but to action these it is vital that you to get in touch with them as they are working on a case-by-case basis.
We know that many lenders are experiencing extremely high call volumes and may have a reduced staffing infrastructure in place due to COVID-19. Our best advice is to keep trying.
The Financial Conduct Authority (FCA) are looking into the car finance industry to see what help is needed to offer struggling customers. We'll update this blog if the FCA announces further changes.
Taking out credit in the current climate
If you’re considering borrowing money either through a credit card, loan or overdraft, to help you cope during the Coronavirus outbreak, make sure you don’t borrow more than you can afford to repay, to avoid facing the additional pressure of meeting monthly repayments your income won’t stretch to cover.
This means only borrowing what you can afford to repay.
Things you can do now to save money
1 Revise your budgets and create an emergency budget, seperating the nice to have's from the must haves
2 Check any policies you have in place, if you are not or cannot make use of them you may be able to pause them
3 Talk to your creditors, discuss options including payment holidays
Whatever your situation, we are here to help in anyway we can. Got a question? Contact our friendly team on 01273 433480 to find out more about leasing an electric car, or request a callback at a time that suits you.
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