How to protect your credit if the pandemic is affecting you financially
Nearly six in 10 Americans say their incomes have been affected by the coronavirus pandemic, according to TransUnion survey of over 3,000 American adults in the field last week. About 78% fear paying their bills and repaying their loans.
They might be right to worry – missing a payment on your mortgage, student loans, or credit cards can have a big impact on your credit score. In 2007, the average The FICO credit score was around 690, but during the depths of the financial crisis in 2009, when many Americans were unemployed and struggling financially, it fell to 687.
New stimulus package offers certain credit protections: lenders and financial institutions need to report accounts as “current” (as opposed to past due) to credit bureaus for up to 120 days after the declaration of national emergency ends.
But these rules are limited. First, to get credit protection under the CARES (Coronavirus Aid, Relief and Economic Security) law, you need to be up to date on all of your payments. If your account is not up to date, you are not eligible.
Second, you must have a forbearance or variation of payments agreement with your lender or financial institution. If you’ve applied for and received a 90-day forbearance on your mortgage payments – and your previous payments were paid on time and in full – your missed payments won’t be reported to the credit bureaus.
Yet even with the provisions of the CARES Act, the credit of millions of Americans will be affected, including those who struggle through no fault of their own, says Chi chi wu, lawyer at the National Consumer Law Center. Take the example of restaurant workers. Many were made redundant due to shelter orders on site and now may have a hard time paying their bills. If they miss payments without first contacting their lender to set up some forbearance type or modified payment plan, they will be treated the same as someone who mismanaged their credit, Wu says. .
It’s important to take action now to protect your credit and make it easier for you to get back on your feet once the pandemic is over. Here are five things you can do now if you’ve been financially affected by the coronavirus pandemic.
Under the protections of the CARES Act, the only way to protect your credit is to continue to make payments on time or apply for coronavirus assistance programs before you get into trouble. It is not automatically applied to your accounts.
“Consumers are going to have to pick up the phone and call their agent for help,” Wu says. You will have to call each lender that you can’t afford and request relief separately. Each individual account must be put in default.
If you don’t have time to wait on hold – some consumers report wait times lasting for several hours – you can download the DoNotPay application ($ 3 per month; subscription only available for iPhone), which offers a “ignore hold on hold” feature where a robot calls the company, navigates through the prompts, waits on hold, and passes the call to you when A customer service representative is available.
There is a special comment code, a Natural Disaster (AW) code, which lenders and credit bureaus can add to a credit report in the event of a hurricane or other extreme weather events. After Hurricane Harvey hit Texas and Louisiana in 2017, approximately 40% of consumers have applied this code to their credit report.
Although it has been around for decades, the code could be applied to events beyond natural disasters, including the current coronavirus pandemic, John ulzheimer, a credit scoring and credit scoring expert, told CNBC Make It. “When this code is added to an account, it actually adds a phrase to your account that says’ affected by a declared or natural disaster,” says Ulzheimer.
It’s not something consumers can add themselves, so you’ll need to call your lender or the credit bureaus, Equifax, Experian, and Transunion. Adding a natural disaster (AW) code won’t affect your FICO credit score, says Ulzheimer: “It’s purely cosmetic, it doesn’t protect the score.” But the code protects your VantageScore (another type of credit score generated by credit bureaus) from any overdue reports added to that account, says Ulzheimer.
“It’s not what I would call a safety net under a trapeze artist, but every little bit helps,” says Ulzheimer. He adds that for most consumers it makes more sense to contact your lenders and request that the Natural Disaster (AW) code be added when you call to request a forbearance or a payment plan, rather than making calls. additional credit. offices just on adding the code. “Kill two birds with one stone,” he said.
When it comes to late payments, there is already credit protection for consumers, says Ulzheimer. Lenders can only report a missed payment 30 days after the payment is due. “There is no way to report someone as being one to 29 days late, there is no such thing,” he says.
But if you don’t contact your lender and put some sort of agreement in place and miss your payment by more than 30 days, your credit score will likely take a hit. How much will vary from “not much to catastrophic enough,” says Ulzheimer. It will depend on the quality of your credit before the late payment occurs.
If you have bad credit and start to miss payments, it might not have much of an impact. “You can only beat a dead horse to a limited extent – there’s not really much more damage you can do to yourself,” says Ulzheimer. But if you have a really good credit score, above 780, adding a late payment to your credit report will be more significant.
Continuing to make minimum payments on your loans and credit cards will protect your credit, says Ulzheimer. But that alone may not be enough.
You should also monitor your balances. When many Americans were unemployed in 2008 and 2009, they began to live off their credit cards to survive until they could find a job, says Ulzheimer. But putting a large balance on your credit card can lower your credit score.
This is because you use more of your available credit, which is an important factor in calculating credit risk and credit scores. When you use more than 30% of your available credit your credit score will usually be lower because it signals to credit card companies that there is a greater risk that you may not be able to pay it all or that it may take. some time. .
“Even though consumers are able to make these minimum payments on time, the fact that they are going into debt on their credit cards is another reason their scores will drop,” says Ulzheimer. If you have emergency savings, use them to pay bills and buy essentials if your credit card balance gets high.