Credit scores shouldn’t collapse because of the coronavirus
For those who are still unemployed or on leave due to business closures due to the coronavirus pandemic, or even those who are starting to return to work, the economic hardship will not go away overnight. The last thing people need is a bad credit score that hinders efforts to get back on their feet.
When COVID-19 restrictions shut down a wave of businesses, restaurants, retail stores, salons, and other services in the name of security, millions of Americans were plunged into a financial nightmare. Rents and mortgages couldn’t be paid, let alone auto loans, credit card debt, utilities, and other bills. There has been some government relief in the form of stimulus payments and cessation of evictions, but these cannot go so far as to ease tax burdens.
The CARES Act has given consumer credit scores some leeway – if your account is up to date and you enter into an agreement with a creditor to make a partial payment or skip a payment, that creditor should report that your account is up to date. This provision only applies to agreements entered into between January 31, 2020 and 120 days after March 27, 2020 or 120 days after the end of the national COVID-19 emergency, whichever is later.
But what happens when that time is up?
It’s back to business as usual, and late payments, missed payments, etc. will be marked as such, which will negatively affect your score.
It is unlikely that, even with a new job, a consumer could be caught up with late rent or mortgage payments and bills within such a timeframe, especially if they remain unemployed beyond the pandemic period. . Unemployment benefits should cover running expenses, such as food and gas, and initial paychecks should also cover necessities before tackling missed payments.
As such, credit scores will take a hit, which could lead to increased interest on loans, credit cards and mortgages. A bad score could even have a detrimental effect on getting a job or housing.
In an effort to be helpful, the three major credit bureaus – TransUnion TRU, Equifax, and Experian – are offering free weekly online credit reports by April 2021.
Good, but that doesn’t help pay the bills, or prevent a late payment from being reported as such once the CARES Act credit period has expired.
Some industries are succumbing to the pandemic, with national retailers such as JC Penney and Pier 1 filing for bankruptcy. The AMC theater chain has expressed doubts about its survival in the COVID-19 crisis. There are jobs that will not come back.
What America needs is a general national grace period for consumer credit reports – beyond the 120-day limit. It could be related to an unemployment rate target, or a milder time, say, two years after the pandemic ended.
Creditors have made arrangements with clients during national disasters such as hurricanes. The coronavirus pandemic has dealt a greater financial blow to the nation and its citizens than any storm. It’s time for TransUnion TRU, Equifax, Experian and other bureaus to respond to a new normal in American finances. The status quo could throw spikes on the road to recovery.