One final disadvantage to payment holidays is their effect on credit scores. This is always a big question for those considering a payment holiday, and depending on your provider and the circumstances under which you take a payment holiday, it may affect your credit score.
You’re may not have a good credit score if you’ve never been in debt. That’s because there is no proof that you keep to your repayment agreement and make payments on time. That is, very roughly speaking, how credit scores work. It should be noted that it is alot more complex than this, but it gives an introductory insight. If you have to pause your repayment because you can no longer afford to make repayments or payments towards bills, for example, this may affect your credit score because you are not keeping to the normal terms of your contract. This would therefore affect your credit score.
However, in light of the Coronavirus pandemic, lots of institutions were encouraged to enable something called a payment freeze. This means that credit scores would be frozen at their current level during any payment holidays. Ensure that your institution has this policy so you don’t face a nasty shock down the line.