Keeping your credit score in good shape is always a good idea.
The higher your credit score, the more likely you are to be approved for loans with the best terms and interest rates. That makes buying a home or car, or using a credit card, a lot cheaper.
If you’ve lost your job during the Covid-19 pandemic, then you may have trouble paying your bills. A late payment, or no payment at all, can cause the biggest drop to credit scores.
Here are some ways to help protect your credit score during the coronavirus:
Talk to Your Lenders
Any financial hardship is a good time to reach out to your lender or creditors, such as credit card providers, to explain what your new situation is and how you may have late or reduced payments.
They’d rather hear from you directly than learn through missed payments that you’re having a tough time. That could lead to lenders putting your account into collections.
Lenders usually offer help during hardships, and are making more programs available during the pandemic.
Call and ask your lenders if they have relief programs and if there are any fees with them. Ask if the repayment amounts can be deferred to the end of your loan, and if interest will continue accruing during the relief period.
If you’re asking for credit card relief, will you be able to use the card while putting off payments or paying less during the relief program?
If possible, make at least the minimum payment on accounts, or pay any amount you and the lender or creditor agree on. Paying what you can should make getting an agreement easier.
How the CARES Act Affects Credit
Much of this help is available through the federal Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, that was signed into law March 27, 2020. It provides more than $2 trillion in economic relief during the coronavirus.
It’s meant to provide fast and direct economic relief to Americans, including workers, families, small businesses, industries and governments. One-time payments of $1,200 were paid to eligible taxpayers, along with $500 per child.
The law affects how companies report consumers’ payment information to credit reporting agencies if consumers are allowed by their lender to defer a payment or given some other type of relief due to the coronavirus.
And that’s the big “if” here. It’s left up to lenders and creditors if they’re going to give you an accommodation to defer a payment, make partial payments, or other relief. The CARES Act only details how they can report it to credit agencies, and doesn’t require them to provide such agreements.
A key consideration is if you’re already delinquent when the agreement is made. The point is not to hold additional missed payments due to the coronavirus against you.
The three main scenarios below apply only if you’re making payments required by the agreement:
If your account is current and you make an agreement to make a partial payment, skip a payment or other accommodation, then the creditor must report to credit reporting companies that you’re current on your loan or account.
If your account is already delinquent and you make an agreement, then they can’t report you as being more delinquent (such as 60 days late when you started at 30 days delinquent) during the agreement period.
If your account is already delinquent and you make an agreement, and you bring your account current, the creditor must report that you’re current on your loan or account.
What if Your Lender Doesn’t Provide an Extension?
If your lender won’t provide an accommodation and make an agreement with you to delay or lower payments, it will probably affect your credit report.
Missing a payment or being unable to make the minimum payment, without an agreement, will likely lead to your lender reporting your account delinquent.
You can ask the lender to put a “special comment” on your account that the account was affected by a national emergency during the pandemic. The comment won’t affect your credit scores and the loan will still be listed as delinquent, but a prospective landlord, employer or lender may take it into account when considering you for housing, a job, or a loan.
The special comment is temporary, such as during the time of the declared national emergency. An employer may not see it later, when your credit score could still drop.
A “permanent comment” can be requested for a credit file, though it also won’t affect credit scores. It will remain after the emergency ends, giving prospective lenders and others an explanation for any late payments.
You can also add a consumer statement to your credit reports by contacting the credit bureaus. Statements must be 100 words or less in most states, so keep it brief, such as “Be advised that the negative accounts on my credit report are related to the coronavirus. I intend to make these up as soon as I can.”
Check Your Credit Reports After Talking to Lenders
A free copy of your credit report is available every 12 months from each of the three nationwide credit bureaus at annualcreditreport.com. Or contact the credit bureaus individually: Experian, TransUnion, and Equifax.
After making an agreement with a lender, check your credit report in a month or so to make sure it’s being reported correctly.
If you’re allowed to pause payment for a month, make sure they didn’t report it as delinquent or a missed payment. Changes from these agreements could take a month or more to show up on your credit reports. It’s especially important to check your reports if you’re shopping for credit or expect to move or get a new job soon.
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