Keeping a healthier credit score throughout Covid: the harshest economic slowdown on record

For anyone out there a loan product can enable that first car purchase, or the relief of otherwise unaffordable debt being consolidated into an affordable monthly payment. Exclusively, with ourselves at Sprout it can even provide a path out of insolvency. Of course, from a customer’s perspective credit worthiness (at least in relative terms) needs to be of a reasonable standard in order to be accepted for a loan. Sadly, during these testing times many customers find that benchmark undeniably more difficult during the harshest economic slowdown on record.

24% getting Furlough payments

To put this into context it’s worth considering that on 31/10/2020 9.6 million of the current UK workforce are now getting furlough payments, rather than a regular salary. This constitutes roughly 24% of the entire UK fulltime UK workforce, excluding those in full time study. With this income certainly not permissible in respect of loan applications, the economic shockwaves from the economy means a loss of opportunity for customer and lender alike. However, the damage does not necessarily have to be as damaging as first thought, in respect of a customer’s credit rating and the extent to which they can at least be maintaining an existing loan agreement. Let’s discuss.

Unpaid bills and your credit rating

So, with the current rate of furlough set at 80% of an employee’s salary until 03/21 it is inevitable that for many people outgoings will outstrip income. Therefore, for many an unsecured loan simply constitutes a non-essential outgoing when stacked against a Rental payment or Council Tax. So, what we are consistently seeing is customers not paying unsecured commitments. Of course if loan payments are simply stopped (without discussing anything with the lender) the credit rating is the sacrificial lamb and the detriment for the customer will be self-evident when applying for credit in the future, not to mention the likely phone calls, written correspondence and collection procedures that can ultimately follow.

BUT it doesn’t have to be like this! Mortgage payment holidays are flagged up well on the government’s own website, but the position of unsecured lending has very similar provisions despite it not being as well reported.

Loan payment breaks for Covid circumstances

Basically, according to moneysavingexpert.com the FCA took measures to effectively match the grace period shown by mortgage lenders for consumers with unsecured loans and credit card debt. Borrowers who have had a 3 month payment break can now extend that break to 6 months. More significantly, customers who have not yet had a break can get a full 6 months and rest assured that it will not be reported as missed payments to the credit reference agencies.

Contact your lender if you are struggling

As someone once said, “extraordinary times call for extraordinary measures.” So, any consumer should appreciate that this sentiment rings true in respect of the unsecured debt they might have. With this in mind, speaking to your lenders and requesting these breaks may take care of the need to pay your essential living costs, whilst protecting your credit rating at the same time.

What a way to kill two birds with the same stone…

Jonathan Dewhurst