After tens of millions of jobs were shed during the first couple of months of the coronavirus pandemic, hiring has picked up considerably the past two months. A total of 7.5 million new jobs were added to the U.S. economy in May and June.
However, new applications for unemployment benefits remain near a historically high level of 1.5 million a week. If you are among those who remain unemployed due to the coronavirus pandemic, you might be wondering how this could affect your credit score.
Credit Protections in the CARES Act
The good news is that the Coronavirus Aid, Relief and Economic Security (CARES) Act provides some consumer protections against negative credit reporting. The legislation amends the Fair Credit Reporting Act (FCRA) to stop negative reporting about certain kinds of consumer credit during the pandemic under certain circumstances.
Specifically, you have to contact your creditor to make arrangements for payment relief before you fall behind in your payments. This relief may include deferring one or more payments, making a partial payment, forbearing any delinquent amounts, modifying a loan or contract, or any other type of assistance or relief.
If you make such an arrangement with your creditor before you become delinquent on payments, the creditor must report your account as current for the purposes of your credit reports created by Equifax, Experian and Transunion. This amendment is effective during the covered period, which is defined as the period 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.
If you are already late in making loan payments when you make the arrangement, the creditor can continue reporting your payment status as delinquent until the account is made current. Lenders can also continue reporting charge-offs as such throughout the duration of the pandemic. Once the account is in good standing, the creditor must report your payment status as current.
Note that some mortgage servicers are adding comments to the reports they make to credit reporting agencies letting them know about home-loan forbearance. This notation about forbearance won’t hurt your credit score, but it could affect your ability to obtain another home mortgage or refinance your mortgage later down the road.
Types of Credit That Qualify for Protection
If you have a federally backed mortgage, you can ask for an initial 180-day forbearance on your mortgage payments, followed by an additional 180 days if you need it. Interest will still accrue, but penalties and fees will be waived.
In addition, the CARES Act also suspends negative credit reporting for eligible federal student loans. This means the Department of Education must report suspended student loan payments to the credit reporting bureaus as current.
However, the Act doesn’t provide negative credit reporting protection for delinquent credit card debt, personal and auto loans, or medical bills. Legislation passed by the House of Representatives would extend negative credit reporting to medical debt incurred due to COVID-19, but the House and Senate remain far apart when it comes to passing such legislation.
Protect Your Credit Now
Here are three steps to take now to protect your credit during the coronavirus pandemic:
- Ask lenders to code your credit report. Creditors can enter a code on their reports to the credit bureaus indicating that you’ve been affected by a natural or declared disaster. This could have an impact on your credit request if your lender reads the full credit report instead of just noting your credit score.
- Document the terms of any creditor agreements. For example, print or take a screen shot of electronic correspondence with lenders or take detailed notes about phone calls.
- Check your credit reports. Be sure to check your credit reports 30 days after your creditor agreement takes effect to make sure your credit is being reported correctly. The three major credit reporting bureaus are offering free weekly online credit reports through next April — visit www.annualcreditreport.com to request yours.
Please contact us if you have any more questions about how to manage your credit score during the coronavirus pandemic.