If you’re experiencing a financial hardship due to the coronavirus (COVID-19) outbreak, you might be wondering how late or missed bill payments could impact your credit scores and what you can do to protect your credit history. Missing payments, charging credit cards close to—or over—their limit, or opening several new credit accounts in a short amount of time can all hurt your credit. So, you should take steps to avoid resorting to any of these possibilities.
Instead, here are five tips for preserving your credit during this national emergency.
1. Review Your Credit Reports Regularly
You should review your credit reports regularly for inaccuracies. Errors in your reports could reduce your credit score. If you identify any mistakes or fraudulent activity, you should deal with those problems as soon as they arise. You'll also want to check to see if any of your creditors have reported a delinquency related to coronavirus on your reports (more on this topic later).
Under federal law, you’re entitled to a free copy of your credit report every 12 months from each of the three nationwide credit reporting bureaus—Equifax, Experian, and TransUnion. And, as part of a court settlement, you can get up to six copies of your Equifax credit report each year, at no cost.
2. Dispute Inaccurate or Incorrect Information You Find
If you find that one or more of your credit reports contains inaccurate or incomplete information, you can file a dispute with the relevant credit reporting bureau. You may submit your dispute online, via phone, or you can send a letter. The quickest way to register a dispute is online. To find out how to initiate a dispute online, or to get the phone number or address for filing your dispute, go to the Equifax, Experian, and TransUnion websites.
You’ll have to file a dispute with each credit bureau where the information you're disputing appears.
3. Talk to Your Lenders and Creditors to Find Out If Assistance Is Available
Missing payments and using up most of your available credit is an indicator that you're probably at a high risk of default, which lowers your credit score. So, it's best to make your payments on time and pay at least the minimum amount required. Make it a priority to pay by the deadline and keep your credit balances low.
But if you can't do keep up with the payments because your income is reduced or eliminated as a result of coronavirus, contact each of your lenders and creditors. Let them know about your circumstances, describing exactly how COVID-19 has impacted your ability to make payments. Then, ask what kind of assistance is available.
Potential Mortgage Help
Your mortgage lender might offer a forbearance or another form of short-term relief, like a waiver of late fees or payment deferral. If you need a permanent reduction in your monthly payment amount, you may apply for a loan modification. Call your loan servicer to find out what options are offered.
Under the federal stimulus plan—the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” (H.R. 748)—which President Trump signed into law on March 27, 2020, homeowners with different kinds of federally backed mortgage loans, like those with loans purchased or securitized by Fannie Mae or Freddie Mac, FHA-insured loans, loans insured or guaranteed by the VA, and loans made, guaranteed, or insured by the Department of Agriculture, regardless of delinquency status, can request a forbearance by contacting their loan servicer. The forbearance period will last up to 180 days, and can be extended up to 180 more days (12 months total).
During the forbearance period, the servicer can't charge fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. Also, the servicer can't require any additional documentation other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency.
Assistance for Credit Card Debt, Business Loans, and Personal Loans
Again, it's best to make your payments on time and pay the minimum amount required. But if you simply can’t afford it, many credit card issuers, like Bank of America, Capital One, Chase, Citi, U.S. Bank, Wells Fargo, and others, are offering different types of assistance for consumers. Potential options include a collection forbearance, reduced payments, a lower interest rate, fee waivers, or skipped payments. Some creditors are also offering credit line increases. But be wary about increasing your credit line. While having more available credit could actually help your credit score if you don’t use it (because your utilization ratio would go down), if you charge more on the card after getting the increase, you might have a tough time digging yourself out of that debt.
If you’re afraid of falling behind on a personal loan or small business loan, numerous banks, credit unions, and other financial institutions are offering loan extensions and deferred payments. Call your lender to find out what's available.
Federal Student Loans
The CARES Act suspends payments (and interest won't accrue) for all federal student loans held by the U.S. Department of Education for six months through September 30, 2020. You don't have to request the payment or interest reduction, they're automatic. The Act also stops collection actions, wage garnishments, and Treasury offsets, and prohibits negative credit reporting during the coronavirus national emergency. The Act, however, doesn't provide relief for borrowers who have FFEL-program loans that are commercially held or school-held Perkins loans.
If you’re worried about making payments beyond the forbearance period, you might be able to get a more permanent solution by requesting a deferment or longer forbearance, changing your repayment plan, or looking into whether you might qualify for loan cancellation. (Learn how missing your student loan payments can affect your credit score.)
If you have private student loans, call the lender to find out about payment relief.
Consider All Options
If you think the options that your lender or creditor offers won’t work for your situation, feel free to ask if any other alternatives are available for you to consider. Then, take some time (though not too long) to think about the possibilities. The more you know about your choices—and the more thought you put into choosing the best one for you—the more likely you'll be able work something out with your lenders and creditors that will get you through this difficult time. Once you agree to a plan, stick to it
4. Make Sure Your Creditor Doesn't Report Any Delinquency to the Credit Bureaus
Under the CARES Act, if you make an agreement with a creditor to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or get any other assistance or relief—called an "accommodation" under the law—because you were affected by the COVID-19 pandemic during the covered period, the creditor has to report the account as current to the credit reporting agencies if you weren't already behind. ("Covered period" is defined as starting January 31, 2020, until the later of 120 days after enactment of the CARES Act or 120 days after the end of the national state of emergency declaration.) But you have to come to an agreement with the creditor first to avoid adverse reporting, and you have to stick to the terms of the deal. Don't unilaterally stop making your payments, delay your payments, or pay less than you're supposed to.
If you were already delinquent at the time of the agreement, the creditor can keep reporting the delinquent status unless you bring the account current. In the case of a charge off, the creditor may continue to report it as a charge off.
5. Add an Explanatory Statement to Your Reports, If Necessary
If you find that a creditor has improperly added negative information to your report in violation of the CARES Act, you may dispute it. If your dispute doesn't resolve the issue, you may add an explanatory statement to your credit report. Once you file a statement about a dispute with a credit reporting bureau, the bureau must include the explanation—or a summary of it—in any report that includes that information. (You might also consider filing a lawsuit to force the creditor to remove the information.)
If the reporting bureau assists you in writing the explanation, it may limit your statement to 100 words. Otherwise, there's no specific word limit. But you should try to keep your comment to 100 words or less. That way, the bureau is more likely to use your unedited statement. If your explanation is lengthy, the bureau will probably condense your explanation to just a few sentences or codes. To avoid this problem, keep your statement clear and concise. For example, you might say something like, “The delinquent accounts showing on my credit report were because I lost my job due to the coronavirus outbreak. I intend to make up the payments as soon as I can.”
However, be sure to carefully consider all of the consequences related to using this kind of explanation. Making this type of statement might indicate to potential future creditors that you didn't have the financial reserves to withstand a short-term cash flow problem, which might make them reluctant to extend credit to you.
Getting Help
If you need advice about how to manage your debts so that you can protect your credit, consider speaking with a nonprofit credit counseling agency, like those affiliated with the National Foundation for Credit Counseling. A credit counselor can discuss strategies with you, as well as let you know about different ways to reduce your debts and other financial obligations. You should, however, avoid for-profit debt relief services.
If you need legal advice about how to respond to your creditors or need assistance dealing with them, talk to a knowledgeable debt settlement attorney or consumer protection lawyer in your area.
