With millions of Americans out of work because of business closures caused by the coronavirus outbreak, paying the bills just got a lot harder for many people. And their credit scores are hanging in the balance.
Nearly 60% of Americans said their household income has been negatively affected by the COVID-19 pandemic, according to a survey of more than 3,000 people from the credit rating agency TransUnion (TRU). Of these people, 70% said they were concerned about their ability to pay their bills and loans.
This financial unease stretches across all income brackets, TransUnion found. Households that earn between $20,000 and $35,000 were the most concerned about paying bills and loans (79%), but even half of those who make $200,000 or more annually said they were nervous about the prospect of not being able to pay these debts.
As many Americans now face the possibility of becoming delinquent on their debts and other bills, their credit scores could be adversely affected. Here are the steps people can take to ensure that they maintain as good a credit score as possible throughout the coronavirus emergency:
Get a copy of your credit report
By law, consumers are entitled to one free copy of their credit report every year from each of the major credit bureaus: Experian (EXPGY), TransUnion and Equifax (EFX). Having access to this information will prove vital as the country stares down what could be a major economic downturn, which could leave many people out of work for an extended period of time.
“By getting your credit report, you’ll know exactly where you are and where you’re starting,” Rod Griffin, Experian’s senior director of consumer education and awareness, told MarketWatch. “It’s the core bit of information you need to know where to go.”
When reviewing your credit report, be on the lookout for any incorrect information or signs of identity theft. If there is evidence of false or incorrect information, start getting it corrected immediately to ensure it doesn’t take too big of a toll on your credit history.
A minimum payment is better than a late payment
Ideally, consumers should aim to pay the full amount they owe each month, especially with credit cards. While that may not be possible if you’ve lost your job or have reduced income, it is important to still make whatever payments you can, experts said.
“Late payments can negatively impact your credit score, so it’s better to make a minimum payment instead of no payment at all,” said Amy Thomann, head of consumer credit education at TransUnion. “Additionally, keeping credit card balances low can help limit the impact to your credit score.”
Additionally, for consumers who have signed up for Experian Boost or other services that report rent, phone or utility payments to the credit bureaus, making those payments could help to boost a person’s score.
If you usually mail a check or make one-time payments online, FICO (FICO), recommends setting up recurring automatic payments that will be deducted directly from your bank account to avoid accidentally missing a payment amid the stress caused by the illness outbreak. If you have automatic payments set up, you should also make sure you have overdraft protection.
Ask your lenders if you can defer or reduce payments
Many lenders are offering relaxed payment terms or payment deferrals during the coronavirus pandemic. The Department of Housing and Urban Development and the Federal Housing Finance Agency have stipulated that mortgage lenders should offer borrowers forbearance and loan modification options for home loans backed by the Federal Housing Administration, Fannie Mae (FNMA), and Freddie Mac (FMCC).
And the stimulus package passed by Congress this week included language that guaranteed the rights of mortgage borrowers to request forbearance if they have a federally-backed mortgage, regardless of delinquency status.
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Forbearance plans allow borrowers to stop making payments or reduce the amount they pay each month for up to 12 months. Loan modifications rework the payment structure of the loan to reduce monthly payments.
Additionally, banks and credit unions are offering to defer payments and waive fees for credit-card holders during the coronavirus emergency.
In all these cases, consumers need to make a request to receive this assistance — lenders are not just providing it automatically.
When a borrower is granted forbearance, loan modifications or deferrals, that information is noted on the consumer’s credit report, and lenders can indicate that the assistance was provided because of hardship the borrower faced as a result of the coronavirus pandemic. Having that information on your report is a good thing, though.
“Placing borrowers in a temporary deferred payment plan or in forbearance, along with reporting an account status as ‘current’ instead of as ‘delinquent’ will permanently ensure that a borrower’s FICO Score won’t be impacted by late payments related to the effects of the COVID-19 outbreak,” a spokeswoman for FICO said.
Lenders are also alerted when these statements are added to one of their borrowers’ accounts, Griffin said.
Consider adding a ‘consumer statement’ to your credit report
In addition to the natural disaster statement lenders can add to a person’s credit report if they’ve been granted forbearance, consumers can add their own statements.
“You can add a statement to your credit report that says ‘I’m affected by the coronavirus’ or similar language,” Griffin said. Doing this doesn’t adversely or positively affect your credit score.
However, having these temporary statements can be useful if you go to apply for a loan in the future. “A statement like that will help potentially tell more of your story if your report is reviewed manually” during underwriting, Griffin said.
Your credit score doesn’t have to be your top priority right now
It’s important to keep in mind that credit scores are always changing, Griffin said. While taking steps now to keep your credit in good standing will help consumers in the long run, it shouldn’t be at the top of their priority list right now either.
“Take care of your family, take care of your health, make sure that you have a roof over your head and food on the table,” Griffin said. “And then worry about your credit reports and credit scores.”
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