Can a payment holiday affect my credit rating?

A payment holiday is an agreement between you and a lender allowing you to temporarily stop or reduce your monthly repayments for a defined period.

DURBAN – According to credit checking agencies, customers who take a payment holiday due to the coronavirus pandemic, won’t damage their credit ratings. 

A payment holiday is an agreement between you and a lender allowing you to temporarily stop or reduce your monthly repayments for a defined period. The payment holidays offered by most of the banks are for three months until the end of June. 

However, the agencies advise that before you jump at the offer of a payment holiday, check if your debt is covered by a credit life insurance policy. Depending on the terms, you may not take a payment holiday if you can claim against your credit insurance policy and therefore a payment holiday should be your last resort. 

Jeannine Naudé-Viljoen, the general counsel for credit bureau TransUnion Africa, says provided you have correctly applied for a payment holiday and the lender submits the payment holiday flag to the credit bureau, your immediate score will not be impacted. 

“Should you be granted a payment holiday, your lender will provide the credit bureaus with the appropriate information to identify your payment holidays against your specific accounts,” 

“As long as a deferred payment date (which will be the future date) is supplied by your lender to the credit bureau, your account will reflect as updated until the payment becomes due and payable,” she said.

A credit report comprises four components: your personal information, the past 24 months of your payment history, any default judgments, and enquiries by creditors every time you apply for credit. Credit bureaus also assign to you a credit score.

“The decision to take a payment holiday is not to be taken lightly. Lenders typically continue charging interest and fees on your accounts, making your repayment term longer and your balance higher in the long run.If you default on the payment holiday, it will negatively impact your credit score, which is a measure used to determine whether you qualify for a loan and how much interest you should pay,” added Naude-Viljoen.

According to Experian, a credit score of 650+ means you will easily obtain credit at low interest rates. A score of between 600 and 650 is very good and means you’ll qualify for credit at good rates. A score of between 550 and 600 is still good and comes with acceptable rates, while anything below 550 is sub-prime, meaning you will either struggle to get a loan or not qualify at all. 

 

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