The Coronavirus Aid Package and Protecting Your Credit
, by Tom Quinn
On March 27, the President signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which is designed to provide emergency assistance to people and businesses affected by the coronavirus. This aid package offers many benefits to individuals. In this article, we're focusing specifically on the section of the law that addresses credit reporting (Section 4021). This section of the act was included to help ensure that coronavirus credit relief programs don't negatively impact a person's credit.
How will the CARES Act affect credit reporting?
As the financial impacts of the pandemic begin to be felt by more Americans, many are starting to worry about how they'll pay their bills on time. Many lenders have stepped up to help by reaching accommodations with consumers overwhelmed with financial obligations. Section 4021 in the CARES Act addresses how lenders should report these arrangements to credit bureaus.
The law states if you and a lender agree to temporarily modify your loan payments due to the coronavirus that the lender should continue to report your account as "current" as long as you fulfill the terms of the modified payment plan. However,if your account was delinquent before the modified payment plan was made, the lender can continue reporting your account as delinquent. This new reporting requirement also doesn't apply to charged-off accounts.
How long will this new reporting last?
These reporting requirements will apply to modified payment plans made to accounts starting from January 31, 2020, until 120 days after the end of the national emergency (the end date of the crisis will be defined at a later time). In other words, if you enter into a modified payment plan with your lender, the credit reporting requirements only apply if the modification agreement took place between January 31, 2020, and 120 days after the coronavirus national emergency ends. If you plan to request a modified payment plan, do it now to make sure this law covers you.
Note, the reporting of an account being in forbearance1 or a deferred payment plan is not considered negative by the FICO® Scores. However, the information your lender will likely continue to regularly update on the account, such as current balance and payment status, will continue to be considered your FICO Score. As such, you should confirm with your lender on how they intend to report this information while the account is in this deferred status.
If you happen to be financially impacted by the pandemic, the best course of action is to contact your lenders as soon as possible (preferably before missing any payments) to explain your situation and seek assistance.
1With a loan forbearance, the lender permits the borrower to pay either a reduced payment or no payment for a temporary short-term period.
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.