Published by linker 5
Posted on August 3, 2020
9 min readLast updated: January 21, 2026
By Justin Basini, CEO and Co-Founder of ClearScore, the UK’s leading free credit score and credit marketplace
During the coronavirus pandemic, the government and financial bodies such as the FCA have provided a temporary financial safety net for consumers. Beginning in March, and extended in June, six-month payment holidays are in place for mortgages and loans (including car finance), as well as for credit cards and interest-free overdrafts. To date, payment holidays have been granted on 1.9 million mortgages, 961,700 credit cards and 688,900 personal loans[1]. A further 27 million interest-free overdrafts have also been granted. Whilst these schemes have undoubtedly provided essential financial relief for millions during the pandemic, they are not limitless, and as they draw to a close in October, consumers will have to resume repayments if they don’t want to become delinquent and negatively affect their credit score. Whilst analysing potential drops in credit scores gives us an idea of how payment schemes have impacted individuals’ personal finances, these schemes will have far-reaching implications for the lending sector as a whole, as credit providers continue to balance their exposure to risk once these schemes come to an end.
Our research into payment holidays shows that, perhaps surprisingly, only 11% of people have taken advantage of payment holidays, with another 4% planning to. Of those that have already utilised payment holidays, the majority have done so as a precaution, with just 35% of people doing so because they were unable to afford their credit card repayments, 28% as they were unable to afford their mortgage repayments, and 32% as they were unable to afford their personal loan repayments. With the majority of borrowers taking out payment holidays as a precaution, it follows that most should be able to afford their repayments once their payment holiday has come to an end. It also highlights that up to a third of people are likely to still require financial support if they are to avoid falling into problem debt, delinquencies and in the worst cases, repossessions or bankruptcy. With the furlough scheme also coming to an end in October, we can expect a further rise in unemployment, and further strain on specific segments and their ability to keep up with agreed payments.
| When asked ‘How urgent was it to take out a payment holiday on a mortgage, credit card, personal loan or car finance?’ | ||||
| Credit Card | Mortgage | Personal Loan | Car Finance | |
| Extremely,
I could not afford repayments |
35% | 28% | 32% | 30% |
| Somewhat,
I could afford repayments, but only just |
50% | 53% | 50% | 57% |
| Not very,
I could afford repayments but did it as a precaution only |
15% | 19% | 18% | 13% |
*Data based on nationally representative sample of 3,000 respondents
Consumers who signed up to take advantage of payment holidays for loans, credit cards and mortgages from the start of these schemes in March could have faced an average drop of 104 points to their credit scores over the initial three month period had they not been able to make repayments. Therefore, if these schemes had not been extended, millions of people could have been left with black marks against their credit histories that take six years to come off a credit report. With payment holiday schemes now extended to the end of October, someone who would be unable to pay their bills on their loans, credit cards and mortgage for the entire six months would have seen their credit score drop by a staggering 124 points. This potential drop in credit score over six months demonstrates just how essential these payment holiday schemes have been in safeguarding the financial well-being of those in the most financial distress due to the coronavirus pandemic. With the potential reduction of credit scores, this could reduce access to credit products, and certainly mean that people will end up paying more for products such as loans and credit cards. It is essential that lenders are as flexible and open as possible with their financial products as consumer spending will play a critical role in economic recovery from COVID-19.
The average ClearScore credit score in the UK is 360 (out of a possible 700). The table below demonstrates the credit score cliff edge that consumers could have faced without the introduction and further extension of payment holidays, with the average potential impact following a missed credit card, loan or mortgage repayment over the course of one, three and six months. The three-month column shows what could have happened to those unable to pay over the course of the next three months, had payment holiday schemes not been extended. The six-month column demonstrates what could have happened if the schemes were not introduced at all.
| Credit product | Average drop in credit score with one-month delinquency | Average drop in credit score with three-months delinquency | Average drop in credit score with six-months delinquency |
| Credit card | 21 points | 47 points | 61 points |
| Loan | 33 points | 47 points | 44 points |
| Mortgage | 7 points | 32 points | 53 points |
| Credit card, loan and mortgage | 50 points | 104 points | 124 points |
**Data taken from ClearScore users who were up to date with all their payments in the year before lockdown (March 19 – Feb 20)*
Whilst taking advantage of these schemes won’t directly affect credit scores, it is likely to have an impact on future access to credit. While on the whole, payment holidays have undoubtedly been good news for consumers in financial hardship, they have placed additional strain on the lending sector, with lenders shouldering the burden of reduced cash flow as payments are put on hold. Lenders have been forced to tighten their lending criteria due to uncertainty in the market since the beginning of the pandemic, not least because many consumers’ ability to repay debt has been reduced due to instability in the employment market. Whilst lenders and providers are responding to the contraction of the market with a decrease in the number of products on offer, higher APRs and LTV offerings – making credit less accessible to consumers – these actions increase the likelihood of consumers’ ability to repay the debt they’re taking out.
Our research shows the number of prime credit card products available for prime customers decreased substantially from an average of 5.28 on the 1st of January 2020, to just 2.25 products on the 16th of May, whilst the average number of loan products available to prime customers decreased from 4.26 products to just 1.79 for the same time period. Lenders have started to implement new technologies for assessing affordability rather than relying solely on credit scores and reports to ensure sustainable and safe lending practises, whilst not restricting credit unfairly. The contraction of the lending market to date already shows the lasting impact that income instability from COVID-19 and subsequent payment holidays could have on the UK’s lending landscape.
Lending is ultimately a commercial decision, with lenders able to set their own criteria, aligning with their appetite for risk. Whilst credit files will show that payments are up to date if consumers have taken advantage of payment holiday schemes, lenders are within their rights to bring other factors into their affordability assessments. With the introduction of payment holidays, and the fact that credit report data can be up to three months out of date, lenders are having to shift to new data to ensure their affordability assessments are fair, up to date and a true reflection of someone’s ability to afford credit. For example, many lenders are increasing the rate of adoption of open banking as a result, giving lenders a clearer picture of a person’s suitability for credit by granting them visibility of their verified income source, other financial obligations and day-by-day spending patterns.
Along with open banking, lenders are beginning to add new questions and required information to their affordability assessments to help them create an accurate picture of someone’s ability to afford credit. This can include bank account information, whether an individual has taken a payment holiday, how susceptible an industry is to redundancies, and whether an individual has been furloughed. For the majority of consumers who took out payment holidays on their credit cards, loans, mortgages and car finance just as a precaution, rather than a necessity, these tightening of lending criteria could have a large impact as payment holiday schemes were designed only to be used when absolutely necessary. Whilst it stands that payment holidays will not affect credit scores or show up on credit reports, those who took payment holidays as a precaution are likely to find their future access to credit restricted unnecessarily, as they could have afforded their agreed financial obligations. Our advice to our users through the crisis has been to only access payment holdiays when absolutely necessary.
With the closing of the furlough scheme coinciding with the end of payment holidays in October, and unemployment forecasts hitting 4 million for the first time in UK history, responsible lending is going to become an increasingly critical lifeline for some people. The adoption of open banking and implementation of more detailed affordability assessments should help to ensure that the maximum number of consumers possible will still have access to credit in the coming months. Now is the time for lenders to incorporate these new technical capabilities to allow for the flow of data, and the continuing health of the lending market.
No one can know for sure what the credit industry and consumers’ financial well-being will look like at the end of 2020, but even with payment holiday schemes currently in place, what’s apparent is that the divide between ‘haves’ and ‘have nots’ will continue to grow. Those who struggled financially, especially younger consumers, at the start of the pandemic will bear the brunt of tighter lending criteria and a contraction of low interest products. The third of people taking payment holidays as a necessity due to not being able to afford repayments face a financial cliff edge when these schemes are withdrawn at the end of October. At the same time, those who took out payment holidays as a precaution rather than necessity are likely to find themselves also falling foul of tighter affordability assessments, restricting their access to credit.
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