Three ways your credit score could be ruined due to coronavirus – and how to avoid it
BORROWERS' credit scores could take a hit if they take up emergency measures to help their finances during the coronavirus outbreak.
Banks and building societies are offering a raft of support - including three-month mortgage holidays and increased overdrafts.
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But while your credit score will be safeguarded under new rules when taking out some of this help, not everything is covered.
The UK's three credit reference agencies, Equifax, Experian, and TransUnion have agreed to a special measure called an “emergency payment freeze".
This means, where you agree a repayment holiday or payment freeze with your lender or you temporarily reduce repayments this won't affect your credit score.
But where you take out new credit or add to your existing borrowing this is likely to be reported to credit reference agencies as usual.
How to boost your credit score
WHILE there is no credit blacklist which bans people from any sort of borrowing at all - if you have struggled in the past you may find lenders won't consider you.
If that's the case then there are steps which you take to help improve your rating:
- Get on the electoral register. This proves who you are and where you live meaning it's easier to get credit if you're on the list. Also check the electoral role for any errors. You can sign up by .
- Don't make too many credit applications. Making lots of requests in a short period of time can be seen as a sign of financial distress - and each application will be recorded on your file. Use a "soft-search" eligibility calculator to show how likely you are to be accepted.
- Always pay your bills. Late payments are also recorded on your file so make sure you pay your monthly bills on time including utility and credit cards.
- Pay down your debt. Try and cut down your existing debt before applying for new credit as lenders may be reluctant to lend to you if you already have a large amount of debt.
- Use a credit-builder credit card. These cards tend to have high interest rates compared to normal cards but if you can show you're a responsible spender with them, it can improve your chances in the eyes of lenders.
And this could have a negative impact on your score.
We outline three key scenarios that could result in your credit score taking a hit - and how to avoid them.
1. Missed payments that haven't been agreed to
Unless your lender has agreed to a payment break, missing repayments or cancelling direct debits is likely to have a negative impact on credit scores and could affect your chances of getting credit in the future.
And this applies even if you can't get through to your lender to arrange a repayment holiday.
James Jones, consumer expert, at Experian told The Sun that thousands of companies relay information on payments to credit reference agencies.
He says this includes financial products such as mortgages, credit cards, loans, current accounts, store cards, car finance, mail orders, short-term loans, and guarantor loans.
But some household providers will pass on this information too, including certain energy, water, and broadband firms.
Information on mobile phone contracts and rent is also passed on to reference agencies.
To avoid being stung it's vital you talk to your provider before deciding not to continue making repayments.
Keep trying to get through on the phone, and try online chat or private messaging directly from your account too.
2. Making multiple applications for new credit
Applications for new credit typically trigger a credit search as lenders need to check whether you can afford to repay the loan you're applying for.
So if you already have a current account, for example, but you now want an overdraft it's likely lenders will carry out a fresh credit check for this.
The Sun has contacted the major lenders to ask if they'll pass such information onto a credit reference agency due to the crisis.
Of those that have come back to us so far, HSBC, Lloyds Banking Group, Santander and TSB say new overdraft applicants will be credit checked as normal.
How to check your credit score
HERE'S how to check your credit score
You can request a one-off statutory credit report for free from all three credit reference agencies listed below.
For on-going monitoring, here's what the three credit reference agencies provide:
- Equifax: You can for free for the first 30 days, after which it's £7.95 a month.
- Experian: You can check your score for free using its . But if you want to itself, you can only do this for free using a 30-day trial, after which you'll be charged £14.99 a month.
- TransUnion (formerally Call Credit): You can sign up to its for free to get unlimited access to your report and score for life.
You can also check your credit score for free using the following third parties:
- ClearScore: ClearScore uses Equifax's data to forever.
- MoneySavingExpert.com: This tool uses Experian's data to forever.
But Mr Jones explains that one new check won't ruin your score - it's only if you're making more than one application in a short time frame that this will have an impact.
To avoid this, Mr Jones said: "We would encourage people to limit and spread out applications for new credit.
"It's also worth noting that any impact applications have on your score is only temporary."
You should also use a pre-eligibility check before applying as this will tell you your likelihood of getting credit without impacting your score.
has a loans and credit card checker you can use.
3. Increasing existing credit card and overdraft limits
Any change to a credit limit, such as on an overdraft or credit card, will be reflected on your credit report.
But whether it has an effect on your score depends on the type of credit and whether you actually use that increased limit.
Mr James explains that with overdrafts, for example, simply increasing the limit doesn't tend to effect scores.
But the total value of debt will have an impact, so if you use that increased overdraft facility your score is likely to take a hit.
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It's slightly different for credit cards though, as here, Mr James says credit reference agencies compare the limit to your balance to help determine your score - as well as looking at how you heavily you use your card.
So doubling your credit card limit but maintaining the same level as debt is likely to have a positive effect on your score, says Mr Jones.
But increasing your limit and quickly using it will have the opposite effect.
Many of the major lenders have introduced automatic increased interest-free overdraft buffers as a result of coronavirus.
These will apply automatically where people already have an overdraft, but HSBC and Santander told us if you increase your overdraft limit it will pass this information on.
Lloyds Banking Group confirmed overdraft increases won't, however, impact your score.
We'll update this story as soon as we get any more responses.
In the meantime, think carefully before using any increased balance.
If you do, bear in mind you should try to pay it off within the interest-free period otherwise you could be stung by hefty interest charges once over.
More on debts
Having a poor credit score can push up your bills - motorists could be paying up to £1,100 more a year for their car insurance because of it.
It can also add £262 a month to your mortgage repayments but there are ways that you can improve it to get a better deal.
But Monzo customers will soon be able to check their credit score for free on the app.