Taking out a new loan, moving to a new loan and even merely remortgaging requires that the bank looks at your credit score. The worse the score the less potential you are to be accepted; the less you are going to be offered and the higher the interest rate will be on the loan. So damaging your credit score is about the worst thing you can do if you might be needing to take out or change a loan on the future. And the way that you do that is by omitted payments on your current loans.
What if you know you will miss a payment?
What should you do then if you think that you might be going to miss a loan payment? Sticking your head in the sand and ignoring the problem is not the answer. If you miss the scheduled payment and the building society does not get the money on time, they will note this on your credit file and you will be penalised when you next want a loan. It may even be something as daft as stopping you from changing your mobile mobile.
What’s the alternative? Well if you know that you are going to have a problem making a payment, prepare for it. As for instance, if you are having to pay for an upcoming wedding or other huge genuine expense, then your bank might be willing to listen to you. If you tell them that you know of a problem that is going to hit you, maybe having to buy a new car to get to work, then they may be understanding an agree a payment holiday.
Why this works
If you arrange a payment holiday, or even only a reduction in monthly repayments for a few months it will cost you more in the long run from extra interest. But if you have at least spoken to your lender and arranged the changed payment schedule, not merely are they then not going to hit you for any charges for omitted payments, but they will probably not record the change on your credit score.
Why is this? Well you have done the responsible thing, you have spoken to your bank and have arranged a solution. And if you keep to this amended schedule then you are paying the agreed repayments and this is the aim of the credit score – to show that you are keeping to a plan, even if it is a modified plan, that you have agreed with your building society.
But absent a loan repayment without arranging it with your bank is round the worst thing you can do to your credit score!
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