Protecting Your Credit During the Coronavirus Outbreak
March 13, 2020, by Tom Quinn
As the number of coronavirus cases spreads, it is also having negative impact on the financial health of the economy at large and the economic well-being of individuals across the United States. The unusual nature of this pandemic has resulted in the temporary closing of schools, cancellation of events and the disruption of the distribution of goods and services that may have the unintended consequence of impacting some people's ability to pay bills on time.
If you are one of these impacted consumers you may be wondering:
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What will happen if I miss payments on my credit cards and loans?
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How might the decisions I make affect my credit rating and access to credit in the future?
These are important questions to consider because your FICO® Scores influence the credit available to you as well as the terms, such as interest rates and amount of credit extended. To be clear, medical conditions or diseases are not considered by FICO Scores and will not directly impact a FICO Score. However, the potential financial "fall out" of missing a payment, charging credit cards up to and over their limit or opening several new credit accounts over a short period of time can have a negative impact on the scores.
So, what should you do to help yourself and monitor changes to your FICO® Scores if your financial situation has been impacted by coronavirus?
Before bill payments are due, you should contact your bank and other creditors as soon as possible to make them aware of your situation. Your lender will likely have procedures in place to work with customers impacted by this unique health emergency. In fact, several federal and state regulators have already issued guidance to lenders encouraging financial institutions to work constructively with affected consumers, small business owners and communities.
For example, your lenders may work with you to increase your available credit or to set up a deferred payment plan, or temporarily place the loan in forbearance (meaning you may get temporary relief from having to make full payments on your credit obligations). The placement and reporting of an account in forbearance or a deferred payment plan in and of itself does not negatively impact a FICO Score. This holds true with all versions of the FICO Scores.
Keep in mind, your prior history of payments will continue to be considered in the calculation of your FICO Scores. So too will other information that your lender regularly updates on the account, such as current balance and payment status. As such, you may want to also check with your lender on how they intend to report these fields while the account is in forbearance or a deferred payment plan. For example, does your lender plan to report the payment status of your account as 'current' (i.e. 'paid as agreed') during the forbearance period?
Each lender is likely to have their own unique policies, so if you have loans from different financial institutions, you may want to contact each of them to cover all of your bases.
Check out this FICO Score checklist we put together to prepare for the coronavirus.
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.