Will my credit score go down if I can’t make payments because of COVID-19?

How your creditors should be reporting your credit accounts to the various credit reporting agencies if you’ve requested accommodation due to the coronavirus/COVID-19. Now, you’ve likely heard on the news, they’ve recently passed the CARES Act, which stands for Coronavirus Aid Relief and Economic Security Act, which covers a lot of different things. It covers the payments that are going to be sent out to the nation, as well as, it’s changed some of the laws as relates to credit reporting. Because one of the questions I’m receiving from a lot of people who are calling our company is hey, I’m doing what you’re saying, I’m reaching out to my creditors, they’re working with us. 

I’m seeing that with a lot of car lenders, home lenders, even credit card companies that are willing to defer your payments for a period of time. But people are concerned about their credit. Is going to look like, if they agree to this accommodation. And luckily, it actually deals with this in the CARES Act. There’s a section, section 4021 of the Act, and it actually mends the Fair Credit Reporting Act, which is the FCRA.

So, what it states is that if one of your creditors if you reach out to them and say look to them. I lost my job, or I have reduced hours or any reason related to COVID-19, that there’s something going on that you can’t make payment. If you reach to your creditors and they offer them some kind of accommodation, specifically the Acts states if they agree to defer a payment, allow you to make partial payments, or even forebear any delinquent amounts, modify the loan, whatever it is that they do, that they make some type of accommodation, then they are required to report to the credit reporting agencies (Transunion, Experian, Equifax), they’ve got to report that the loan is current. Even if the accommodation means that you’re not making a payment, they’ve got to continue to report that loan as current, so that you don’t get hit on your credit score, and have it reduced because they made this accommodation. 

Now there’s a catch on this. There’s actually a couple of catches to this. If you’re behind on your payments already, let’s say that’s a credit card and it’s been delinquent for 4 to 5 months, if they make accommodation and they agree not to continue to charge interest, or just generally stop collections on it if the law allows them to continue to report the account as delinquent to the credit reporting agencies. So, essentially, they’re just having to report what’s accurate, that it was delinquent before all this happened. And even though they’re not requiring you to collect, they’re still going to report it is a delinquent. Now, it’s important to note that the time period that this covers starts January 31, 2020, and it’s going to go out 120 days from when the law was enacted, which was the end of March 2020. Or, it could even go as far as long as there is a national emergency that’s still declared, relating to the coronavirus/COVID-19. 

So, just to kind of boil that down, if you’re current on your payments now, and you reach out to the creditor, and they agree to make some sort of accommodation. When you’re not having to make a payment, they are required to report you as current on your loan. They can’t go and say, you know, you’re 30 days late, 60 days late. They can’t do any of that. However, if you are behind if you’re delinquent on your account before January 31st, 2020, if you are already behind, then the law allows them to continue. To report the account going forward. Now one little exception to all of this is if the account was already charged off. And so charge-offs happen 180 days after the last payment is made. For instance, if you have a credit card, you stop paying on it, you’re going to start dealing with collections, 180 days later, if you still haven’t paid that, then at that point, they’re going to charge that off, and these provisions don’t apply.

So they can still report it as a charge.  They can still continue to do collections on it. And it’s important to know, none of this stops the creditors from actually trying to collect on a debt. It just states if they’re going to help you out, if they’re going to make some type of accommodation here, and you’ve already been on time on that payment, then they can’t go and report you as a delinquent. Because they’re helping you out with that. So I hope that helps you out with the kind of making that decision of how you want to handle things if money is becoming tight. And I know it is for most people. All of sudden, wages are cut, hours are cut, jobs lost completely. It’s going to be tough to make some of those bills. My advice is still to reach out to your creditors, especially now. Reach out to them. No matter what the situation is, reach out and ask them if there’s something that they can do that will help you to delay things. So that you don’t end up with lawsuits and everything else that’s involved with not making payments to your creditors.