Worrying about credit scores when one is out of work and trying to keep a roof overhead seems trivial.
But mostly anytime is a crucial time to monitor credit reports because of the long-term effects of any negative remarks.
Creditors and Coronavirus
When the Coronavirus started inching its way onto the evening news, HCR Wealth Advisors realized that the country was in a blissful state of nearly full employment. Unemployment figures were at historical lows in every demographic grouping.
So as "pandemic" became the word du jour, and companies started taking measures to respond, no one was adequately prepared. Layoffs and work-at-home orders seemed to come swiftly.
The government tried to respond just as fast, signing the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. HCR Wealth Advisors worked with its clients to understand what CARES provided.
Within its $2 trillion was funding to help employers hold on to employees and cover some overhead. Unemployment compensation also got a boost of $600 extra per week for four months. (Compensation was extended to freelancers who typically would not qualify, and all got 39 weeks instead of the usual 26.) And individuals got $1,200 per adult or up to $3,400 for a family of four.
Hospitals, providers, corporations large and small, at-risk industries, and state and local governments got the rest.
Borrowing from retirement plans was made more flexible and generous, as were several forms of medical payments and drug approvals.
And, because housing was considered vital to restrain the spread of the virus, efforts were made to keep people living where they were.
HCR Wealth Advisors went on to explain:
The CARES Act Rental Eviction Protection – The CARES Act provided 120 days of eviction relief for tenants in federally-backed housing.
Landlords could not charge late fees, penalties, or other charges for paying the rent late. Mind you, the debt did not disappear; it was simply delayed to a later date. And landlords were prevented from evicting renters for late payment.
Rural housing and housing under the Violence Against Women Act was protected, as was all housing with a federally backed mortgage or multifamily mortgage loan.
Once the 120 days passed, the Centers for Disease Control (CDC) stepped in with an emergency order on September 4, 2020. It became a criminal offense to evict someone who cannot afford rent payments – if the person received a stimulus check through the CARES Act or expects to earn less than $99K as an individual (or $198K as a couple) in 2020.
The protection lasts until January 1, 2021, as long as the tenant has presented the landlord with a signed declaration and has made a specific series of best efforts to resolve the situation.
The CDC's goal was to avoid homelessness or aggravating a shared-living setting. The concern was that either result would accelerate the spread of Coronavirus. And while eviction is usually an issue for low-income people, middle-class people find themselves at risk, too.
The CARES Act Mortgage Relief Protection – The CARES Act provided up to 360 days of mortgage relief.
Lenders holding federally-backed mortgages were instructed to suspend borrowers' payments for up to 360 days if the Coronavirus caused the borrower financial hardship. In theory, one cannot be charged late fees or be reported to credit bureaus. Foreclosures and evictions are halted until December 31, 2020.
However, forbearance is not automatic. Lenders have to contact their loan servicer – the company to whom payments are made – to file a request claim.
If forbearance has been received, it might have come in the form of an initial 180-day reprieve, plus a 180-day extension that must be requested from the loan servicer. It is not automatic, either.
The federal government or a government-sponsored enterprise must back the mortgage loans. That includes the FHA, HUD, the VA, Freddie Mac and Fannie Mae, among others.
If one's mortgage is not with a government-backed lender, lenders may still be willing to adopt policies similar to those of government-backed lenders. A loan modification agreement may be another solution.
The CARES Act Federal Student Loan Protection – The CARES Act provided relief to people carrying federal student loans.
Relief took the form of a reduction in interest rates to zero, an automatic suspension of payments, and an end to collection activities on defaulted loans. These lasted through the end of September 2020.
Department of Education-held loan deferments have been extended through December 31, 2020.
The diversity of loan holders, the countless forbearance programs, and the range of negotiated agreements with servicers have complicated the student loan relief effort. As a result, the best solutions come from contacting loan holders directly.
The CARES Act and Credit Card Companies – The CARES Act did not provide relief for credit card debt.
Credit card companies were not mandated to work with borrowers, so they have used their discretion to decide what relief to provide if any. Some have suspended payments temporarily; others waved fees or increased credit limits temporarily.
If meeting payment obligations becomes a problem, contacting the card issuer directly will bring the most effective relief.
Protecting Your Credit Scores
As HCR Wealth Advisors warned, many of the CARES Act protections were designed to last for only 120 days. That made late July a stressful time, with all those affected by the pandemic wondering if help would arrive in time. And it did not for many.
Granted, lenders had been instructed not to report late or missed payments to credit bureaus, as long as a forbearance program covered the relationship. However, even before the programs expired, Consumer Reports noticed some lenders submitting negative information to credit agencies.
Affected consumers saw their credit scores decline, either after accepting help or after simply inquiring about help on mortgages, for example. One student loan servicer admitted to reporting 5 million borrowers' loan status incorrectly, which resulted in lower scores.
Today, with many of the original forbearance programs expired, borrowers are very much on a one-to-one negotiation basis for relief from lenders, if at all. As such, borrowers need to keep an eye on their credit scores.
Are Credit Scores Worth Fighting For?
HCR Wealth Advisors is watching the unemployment numbers fall. Many folks are either in new jobs or still working from home. But, some people are still trying to stay afloat, with food, housing and healthcare remaining precarious. In that case, survival is a higher priority than credit scores.
But, if earnings allow room for concern over the longer-term future, it is time to proactively monitor credit scores. Negative information is too harmful to ignore. It can remain on credit reports for seven years and can affect one's ability to rebuild healthy finances after pandemic-related losses.
In day-to-day decisions, negative remarks can complicate renting an apartment, obtaining specific insurances, or getting a preferred job.
How to Protect Your Credit Scores
FICO is the standard used by 90% of top lenders to measure one's creditworthiness, although other scores do exist. FICO scores are based on the consumer credit reports from Equifax, Experian, and TransUnion.
Most scores range from 300 to 850. The higher the score, the lower the lender's risk. Briefly, scores are rated as follows:
- 800+ Exceptional
- 740-799 Very Good
- 670-739 Good
- 580-669 Fair
- <580 Poor
To counter any damage done by the pandemic's ongoing economic turmoil, HCR Wealth Advisors points out the five steps needed to do damage control on credit scores.
- Talk to all lenders immediately. According to the Coronavirus relief package, credit reports should not be affected negatively where accommodation was made with any creditor. However, many of those protections have expired. That makes it doubly important to reach out to lenders if loans are no longer under such accommodations.
- Get copies of all three credit reports. Until April 2021, the three major credit reporting agencies allow borrowers to check reports for free each week. Equifax, Experian, and TransUnion reports are available for free at www.AnnualCreditReport.com. Weekly downloads may be too frequent. But consumers who are still benefiting from deferrals or forbearance might want to check monthly, which is the frequency at which most lenders report to the agencies.
- Check for errors. Complaints against credit agencies are rampant, according to the Consumer Financial Protection Bureau. These result from out-of-date information, incorrectly reported accommodations with lenders, confusing customers with similar names, and coding errors. Credit reports should be carefully reviewed for anything that does not look right.
- Dispute any discrepancies. Agencies must be contacted directly with documentation, using their dispute forms or a personal letter if the form seems inadequate. (Contact the creditor behind the information, too.) Keeping detailed notes and copies of all communications will come in handy because agencies and lenders are not always as responsive as they should be. Persistence pays in these cases; push until you get satisfaction in writing from the agencies and the creditors.
- File a complaint, if needed. Credit agencies must be held accountable. If reliable documentation is provided and either the agency or the creditor refuses to reverse incorrect or incomplete information, the next step would be to file a complaint with the Consumer Financial Protection Bureau.
The Coronavirus pandemic has disrupted countless lives. HCR Wealth Advisors is always available to help clients navigate their way back to financial health.
About HCR Wealth Advisors – The team at HCR Wealth Advisors realizes that people are trying to understand how the Coronavirus pandemic has affected their personal finances. It is prepared to provide all the support needed not just to survive but to thrive.
This article is provided for informational purposes only and should not be interpreted as investment advice. HCR Wealth Advisors is not affiliated with this website.