One thing that you shouldn’t sweat is your credit score. Now is not the time.
One question I’ve been getting repeatedly when I do financial segments on television and radio programs is this: How will the novel coronavirus pandemic affect people’s credit scores?
Yes, we in the personal finance space are always talking about getting and keeping a good credit score. An excellent credit score is like a super-high SAT score. You get mad respect.
So, should you worry about your credit score if you can’t pay your bills due to a job loss or reduction in income?
“You should be mindful of it and concerned, but it’s not your number one priority,” says Kate Bulger, director of business development at Money Management International, a nonprofit organization providing financial education and counseling services. “In the event of a job loss, income reduction, or any disruption that may mean that you miss payments, you should contact your creditors right away, preferably before your first missed payment. That said, your highest priorities should be applying for unemployment and reducing unnecessary expenses to preserve cash.”
It’s not that people are concerned for no reason. Your credit history and the rating you get based on how you handle your debts matter a great deal. Your credit score matters when renting, getting an auto or home loan and insurance, buying a car, and even applying to certain jobs.
Yet, Chi Chi Wu, a staff attorney at the National Consumer Law Center, says if you can’t cover all your expenses, concentrate on the important ones — rent, food, electricity, medication and Internet service (so you can apply for unemployment insurance or look for another job).
“Worry about your basic needs first,” Wu said.
It might ease your anxiety to know that the last major stimulus package — the Coronavirus Aid, Relief, and Economic Security (Cares) Act — provided some protections for negative credit reporting.
If you have a federally backed mortgage, you can ask for an initial forbearance of up to 180 days. If additional relief is needed, you’re entitled to a 180-day extension. Interest still accrues, but fees and penalties are waived.
It’s important to note that the law requires creditors to report mortgage borrowers current to the credit bureaus if at the time they requested forbearance, they were not behind on their payments. But, if a borrower were 30 days late, for example, that status would be reported to the credit bureaus during the duration of the forbearance, essentially freezing them at that credit status, Wu said.
“Suppressing negative reporting on a COVID-related forbearance is a big protection for your credit score,” Bulger said.
The Cares Act also suspends negative credit reporting for eligible federal student loans. This means the Department of Education is supposed to report suspended payments to the major credit bureaus as if they were made on time.
You should check your credit reports to make sure any pause in payments is being correctly reported. Because of the coronavirus pandemic, the three major credit bureaus — Equifax, Experian and TransUnion — are offering free weekly online credit reports through April 2021. Go to annualcreditreport.com to request the reports.
The Cares Act does not provide credit-reporting protections for credit card, auto or personal loans, or delinquent medical bills.
“Here we are in the middle of a pandemic and there is nothing in the law to help people keep medical debt off their credit reports,” Wu said.
House Democrats have passed a $3 trillion stimulus package, the Health and Economic Recovery Omnibus Emergency Solutions (Heroes) Act, which would extend credit-reporting protections under the Cares Act.
Under the Heroes Act, negative credit reporting would be suspended during the national coronavirus emergency and for an additional four months afterward. It would ban the reporting of medical debt as a result of covid-19 treatments, Wu pointed out.
But don’t count on the Heroes Act clearing Congress anytime soon. Democrats and Republicans are not in accord about the proposal. So, negotiate as best as you can to pause whatever payments you can. The way credit scoring works, delinquencies have less impact over time, and paying on bills on time once your income stabilizes is the No. 1 way to improve your credit history.
“Lenders have hardship programs that can protect your credit score,” said Ted Rossman, an industry analyst at CreditCards.com. “It won’t hurt if you have permission to pay late, to pay less, or to pay nothing at all for a time. But that’s the key. You need the lender’s permission first.”
Tough times mean you have to make hard choices. Typical financial advice may not apply.