Many of us face money troubles at some point. When bills pile up and payments become difficult to manage, you might consider a payment holiday. But will this break from your financial commitments hurt your credit rating? Let's find out.
A payment holiday is when your lender lets you pause or reduce your regular payments for a set time. You can ask for this break on different types of borrowing:
It's important to know that even though you're not making payments, interest usually keeps adding up. This means you'll likely pay more in the long run.
A properly arranged payment holiday should not directly damage your credit rating.
Your credit rating shows lenders how well you manage money. It includes details about your loans, credit cards, and payment history.
When you agree to a payment holiday with your lender, they should mark your payments as "deferred" rather than "missed" or "late." This means the payment holiday itself won't lower your credit score.
However, there are some important things to watch out for:
Follow these steps to set up a payment holiday the right way:
Most lenders have online forms or special phone lines to request payment holidays. The process is usually quick and simple.
When your payment holiday finishes, payments will start again. There are two main ways lenders handle the missed payments:
Before your holiday ends, your lender should contact you to explain:
Check your credit report about a month after your payment holiday ends. Make sure the lender has recorded it correctly as a payment holiday, not as missed payments.
While a payment holiday won't lower your credit score, it might still affect your chances of getting credit in the future.
When you apply for credit, lenders look at more than just your credit score. They might:
Some lenders may see a payment holiday as a sign that you had money troubles. Others understand that even responsible borrowers sometimes need flexibility.
If you apply for a mortgage after having a payment holiday, be ready to explain why you needed it and how your finances have improved since then.
Before taking a payment holiday, look at these other options:
A properly arranged payment holiday won't directly harm your credit rating. But it's not a decision to take lightly.
Always:
If you're worried about money, getting help early makes a big difference. Free advice is available from StepChange, Citizens Advice, and Money Helper.
Remember, payment holidays are designed to help during short-term money troubles – they're not a solution for long-term debt problems.
Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.
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