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COVID-19 help isn’t supposed to affect your credit; here’s what to check for
There are lots of ways lenders can mess up your credit report, but these are the most common.
Many lenders have allowed borrowers to reduce, delay or skip payments on loans and credit cards in the wake of significant economic shockwaves caused by the coronavirus pandemic. A key component of the Coronavirus Aid, Relief and Economic Security Act (CARES) is safeguarding consumers’ credit scores in the midst of all that payment flexibility. But it’s your responsibility to keep your lenders accountable — they, too, are reeling from shelter-in-place orders and payment changes, so mistakes are bound to happen.
If you don’t catch a mistake on your credit report, it could theoretically prevent you from borrowing more money, getting a job or moving into a new place when you need it most. Here are the credit protections you’re afforded thanks to the CARES Act, along with the ways lenders could incorrectly report to the credit rating agencies, according to Consumer Financial Protection Bureau (CFPB) guidance.
1. You have guaranteed flexibility for certain types of repayment — but you have to agree to it
The CARES Act guarantees you can stop paying back your student loans until the end of September, you can stay in your home or apartment if you can’t make your rent or mortgage payment and you can’t be charged fees, penalties or extra interest when you pay late.
But these protections only exist if the mortgage on the property is federally backed, and there are time limits on how long you can put off making payments. Contact your landlord or mortgage company about how to manage your repayment and request an extension, if needed.
Additionally, many lenders are offering other repayment accommodations — letting you defer payments, make partial payments, forbear delinquent amounts or modify your loan — but in most cases, you have to contact your lender and agree to a specific plan of action. If you get such an accommodation, your lender can’t ding your credit report for it. But if you do nothing and simply miss payment deadlines, the CARES Act won’t protect you and you’ll run the risk of damaging your credit score.
What to watch for:
Make sure your credit report lists as “current” any debt that you’ve received an accommodation for (as long as you didn’t miss any payments before obtaining the accommodation).
The protections on accommodations expire 120 days after the COVID-19 national emergency ends. The accommodations themselves may expire before that, depending on what you agree to.
2. Your credit report can’t get any worse unless your lender charges it off as bad debt
If you follow the rules of your payment accommodation — meaning you make whatever new payment amount is due or you aren’t required to make the payment — your lender can’t ding your credit score any further.
What to watch for:
If you were up to date on payments before the accommodation, your account must be reported as “current.” If you were 30 days past due, your account must not be reported as anything more than “30 days past due” during the accommodation period. Same goes for 60 or 90 days past due. And if you catch up on payments during your accommodation, either by making the overdue payments or by modifying your loan so you’re no longer past due, your account must be reported as “current”.
The only exception is if you were already too far behind on your payments before your accommodation and your lender decides to give up on getting your money back. This typically happens once you’re 120 to 180 days behind, and it’s called a charge-off. You still owe the amount due, but your lender can sell your loan to a debt collector. If that happens, reporting the charge-off will damage your credit score, reporting your account is in collections may further damage your credit, and if you miss any payments to the debt collector, your credit report will be dinged all over again.
3. All reporting is protected, not just payment status
If you follow the rules of your payment accommodation, your lender has to report all aspects of your payment in a way that does no harm to your credit report. That includes payment status, scheduled monthly payment and amount past due. If any one of those is reported more negatively than before your accommodation, ask to have it corrected.
A mere comment code in your credit report doesn’t cut it. The CFPB has stated that “furnishing a special comment code indicating that a consumer with an account is impacted by a disaster or that the consumer’s account is in forbearance does not provide consumer reporting agencies with this CARES Act-required information and therefore furnishing such a comment code is not a substitute for complying with these requirements.”
What to watch for:
Make sure your scheduled monthly payment and amount past due are also accurate on your credit report, regardless of whether there’s a special comment code in your report.
4. Your lender can’t report accommodations across the board
You have to agree to any accommodation offered by your lender. It can’t just grant forbearances to all customers and report those to the credit rating agencies, especially if you haven’t missed any payments. If it does report such a thing, the CFPB considers that inaccurate reporting — and just plain confusing — and you can ask for it to be corrected.
What to watch for:
Accommodations, especially forbearances, on your credit report that you never agreed to.
5. Your credit report can’t be dinged as soon as your accommodation ends
If you follow the rules of your payment accommodation, your lender can’t mark your account as delinquent — or more delinquent than it was when you started — once things return to normal. In other words, accepting an accommodation can’t come back to bite you. Your credit report can only be damaged by failing to make required payments in the future.
What to watch for:
Continue to monitor your credit report after your accommodation ends.
6. Disputes about how debts or payments are reported must be addressed in a timely manner
Normally, the Fair Credit Reporting Act requires your lender or credit reporting agency to investigate your requests for corrections or other credit report disputes within 30 days of receiving them or 45 days if you provide additional information. Due to the strain that COVID-19 has placed on working conditions, the CFPB is giving both consumers and lenders extra flexibility, so your disputes may take longer to be resolved. However, your lender must still make a good faith effort to investigate your dispute as quickly as possible.
It’s a tough situation for everyone, but there’s also no denying there’s a lot at stake.
“Consumer report information is critical to consumers and industry in determining who obtains credit, insurance and housing, and at what price, and who obtains employment in many cases. Consumer reporting has enormous reach, as evidenced by the over 200 million consumers in the United States who have credit files and trade lines furnished by over 10,000 providers,” the CFPB stated. “The bureau understands that the current crisis impacts the financial wellbeing of consumers and poses operational challenges for consumer reporting agencies and furnishers.”
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