Credit and Debt Reporting During the Pandemic
For most people, the scare of financial disarray has been equally as serious as becoming infected with COVID-19. Globally, millions of people are now unemployed, millions more have been displaced or put on furlough and thousands of small businesses and restaurants are closing.
With bills to pay, this has created a serious problem for millions of Americans and has left them with more questions than answers. How are individuals or families supposed to pay for their credit card debt? How will COVID impact credit ratings? How does the relief package apply to credit cards? Let’s discuss these topics as they apply to your rights and the changing regulations during the pandemic.
How Does the CARES Act Impact Debt?
In March 2020, Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to provide relief for various industries, small businesses and individuals. This act made provisions to the Fair Credit Reporting Act (FCRA), which outlines how credit reporting for agencies and their creditors. The FCRA also offers data protection and free access to credit reports for consumers.
The provisions include what are known as accommodations for debt. These are special payment arrangements that borrowers can make with their lenders during the pandemic. The accommodations include deferral, reduced payments, forbearance, grant loan modifications, or other forms of assistance. These accommodations were enforced retroactively starting January 31, 2020 and last for the duration of the national emergency declaration plus 120 days.
The CARES Act mandates these accommodations are made for both student loan borrowers and mortgage loans backed by the government. Many private lenders, including credit card issuers, are not mandated to provide relief. However, many have taken the initiative and have offered their customers various forms of assistance.
Has Credit Card Debt Reporting Changed During the Pandemic?
If the borrower and the lender make accommodations for managing debt repayment, then yes, credit card debt reporting has changed in a meaningful and significant way.
As long as the borrower stays up to date with their end of the agreement, the CARES Acts mandates that credit rating agencies report the account as current. If the borrower agrees to reduced payments, that adjusted payment must be paid when it’s due. If an agreement for deferred payments is made, then paying them once they are due, or following through with other relief arrangements made is required. It’s important to note that accommodations are not always applied automatically. In some cases, they may not be applied at all since private credit card issuers are at liberty to offer assistance or not.
What You Can Do to Get Help
- The best thing to do is contact individual lenders and banks to work out a solution. Consumers who need assistance should prioritize contacting their lender and discussing their options as soon as possible.
- If accommodations are then made, consumer right experts agree it’s best to get the agreement in writing and file for safekeeping. This is important if the lender breaks from the agreement or the credit reporting bureau starts reporting delinquent payments.
- Monitor credit reports and ratings. Consumers are given yearly-free access and some credit card companies actually offer credit monitoring as a complimentary service.
What Will Credit Bureaus Report During the Pandemic?
As laid out in the CARES Act, borrowers staying faithful on payments, or keeping up with any accommodations made, will have accounts listed as current by the national credit bureaus. In either case-- due diligence in regards to managing debt and credit payments will pay off.
Keep in mind, there are some instances where credit bureaus will continue to report delinquent accounts. These include:
- If a borrower never contacts the lender to ask for accommodations, assuming assistance would be automatically provided. If payments by at least 30 days are missed, the credit bureaus will report this. *Contact lenders, never assume accommodations or forbearance are automatic.
- If the borrower was already delinquent before any accommodations were made and the account was previously behind in payments.
- If the account was charged off, and/or payments were missed for more than 180 day before January 31, 2020.
Once the covered period expires, accommodations will be void. At that point, any missed payments can be reported by the credit bureau. If additional federal legislation is not passed and assistance is still needed, borrowers are advised to contact the lender and re-negotiate additional accommodations. Trends have shown lenders are more willing to make accommodations than write off accounts. Borrowers taking time for due-diligence will find greater success in debt payment accommodations and protecting their good credit. In those terms, this hard work should pay off in future loans, interest rates and financing terms.
How Consumers Can Handle Debt Collectors During the Pandemic
If borrowers have made accommodations with the lender during the COVID-19 pandemic, and continue receiving harassment from a debt collector, a debt collection attorney can help. Debt collectors may try to garnish wages or negotiate a payment plan to get money that borrowers don’t actually owe. Credit bureaus are not supposed to report any delinquent accounts so long as the customer has maintained accommodations. But that doesn’t mean it does not happen. Watch credit reports and understand updated consumer rights laws before paying any fees or balances not directly arranged with the lender or bank can save costly mistakes.
How to Protect Good Credit
With everything changing daily, the best thing consumers can do to avoid adverse credit card reporting is to stay in contact with lenders, keep track of conversations and document any contractual changes. If borrowers are experiencing a struggle financially, be it a few weeks or months--reach out for accommodations from lenders. The worst thing to do is ignoring financial responsibilities or assuming relief was made automatically for debts owed.
The combination of a global pandemic and massive government intervention has changed nearly every aspect of day to day life--even our relationships with banks and lenders. Everyone, regardless of demographics or financial situation, has felt the effects. Fortunately these times have led to an increase in debt repayment modifications for consumers who’ve put in the time and effort to contact lenders and request assistance.
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