The one question no one is asking.
As a debt counsellor for FinFix I have seen the confusion and chaos caused in peoples finances due to the national lockdown. People are worried about losing their assets, not being able to make their payments on time etc.
To date, not one person has asked me “How will taking a payment holiday with my credit providers affect my credit profile?”
The short answer – The national lockdown might take your credit profile from great to junk.
Few people know but most credit bureaus list every payment you have missed or made in the last 24 months. Missing any payments will decrease your “credit score” or “credit rating”. Therefore, any payments missed will lead to a negative credit rating or harm future credit applications.
Some may say, “But, I have made arrangements with my bank not to pay.”
Well I think we are in for a surprise. Banks might not enforce legal action during this time where arrangements are made but missing your payments will be logged with most credit bureaus. There have been no discussions to my knowledge by industry leaders to address the impact these “payment holidays” will have on consumer credit profiles. Many people will find to their horror at the end of this pandemic (and it will end) that they no longer qualify for any credit due to missing a few payments.
There are options available to credit providers for listing deferred payments with credit bureaus and some institutions might already be doing this. However, there will inevitably be cases where deferred payment arrangements are made after the missed payments. There will be errors and there will be administrative backlogs preventing credit providers from updating these reports that are usually automatically generated by their systems and forwarded to the relevant bureaus. Leading to thousands or perhaps hundreds of thousands of previously credit worthy persons credit profiles being tarnished.
Also, even if a deferred payment arrangement is indicated on the payment history, a future prospective lender might take this into consideration and even see this in a bad light.
Questions you might want to ask when applying for a stay in debt repayments:
- How will this affect my credit score?
- Are there options available for me to claim for credit life insurance?
- What interest and fees will be charged during the stay in payments?
- Can you (the credit provider) provide me with written confirmation of a payment deferral arrangement?
You cannot fix what you do not know is broken. The first step would be to check your own credit profile. This can be done by applying for your annual free credit profile (yes, every person gets a free profile once a year) with any credit bureau or by contacting FinFix 0876556000 | email@example.com to request a free credit check.
Should there be listings for missed payments where deferred payments have been arranged we would suggest contacting the credit provider to update the listing. Another option would be to make direct contact with the credit bureau and follow their dispute procedures.
Written by Chris Coetzee NCRDC 3062 for FinFix Shared Services (Pty) Ltd.