If you’ve been affected by COVID-19, you may be eligible for relief in paying bills. That can help you prevent damage to your credit from late payments at a time when protecting your credit could help increase your financial resilience.
But hardship and forbearance programs are not automatic — you have to apply for most of them. And you’ll want to understand how they will affect your credit reports and scores.
How the CARES Act affects credit reporting
The Coronavirus Aid, Relief, and Economic Security Act signed into law in March gives consumers some credit protections. It dictates how companies that send data to the credit bureaus will report accounts for which consumers have payment accommodations in place.
If you have an accommodation and you live up to your end of the deal, an account that had been current previously will continue to be reported that way for both account status and payment history, credit expert John Ulzheimer says. But it won’t wipe the slate clean of preexisting negatives: If the account had been delinquent, it will still be reported that way unless you bring it current.
You also can ask lenders to add a code to your credit report to indicate you were “affected by a natural or declared disaster.” FICO does not consider the codes when calculating credit scores, but VantageScore will disregard late payments for accounts with that code in effect.
A disaster code could make a difference if a lender actually reads the full credit report when making a decision, such as in hand-underwriting, says Ed Mierzwinski, senior director, Federal Consumer Program at the U.S. Public Interest Research Group, a consumer advocacy group.
Why your credit matters right now
In a financial crisis, access to credit is the next best thing to a fat emergency fund. If you protect your credit, you’ll have more or better options when you need them, such as being able to qualify for a low-interest loan.
The most important factor for protecting your credit is paying on time. A payment that's more than 30 days late can cause your credit score to plummet, and the mark can stay on your reports for seven years. Your score could also drop if you are using more of your credit limits, but that damage is more quickly fixed. Your score will rebound once you can pay balances down.
How should I handle my bills?
If you’re not going to be able to pay bills in full, you’ll need to prioritize and get some breathing room. Here’s how:
Contact creditors and ask what’s available
Chi Chi Wu, a staff attorney at the National Consumer Law Center, points out that it’s the consumer’s responsibility to reach out and get an agreement despite long wait times on the phone and overtaxed websites.
You may be able to get a lower payment temporarily, skip some payments or get a higher credit limit. Terms of hardship programs vary. Connect with your credit card issuers and lenders — for mortgage, student loans, car and personal loans, etc. — to find out about options.
Document the terms of any agreement
Be sure to document any agreement, whether with screenshots or copious notes about a phone call. Record when you called and whom you talked with. Save emails and other communications.
Make sure you understand all the details, such as start and end dates, and implications. For instance, creditors could theoretically reduce your credit limit or otherwise make it harder to access credit if you ask for payment modifications. But the risk is small, Mierzwinski says. Credit card issuers use algorithms to help figure out how likely you are to repay them after this crisis is over, and they still want customers, he says.
Check your credit reports
Wu advises checking your credit reports at least 30 days after any agreements take effect to make sure that the accounts are being reported correctly.
You are entitled to free credit reports from each of the three major bureaus by using AnnualCreditReport.com. Through April 2021, the bureaus offer a free report every week, rather than the usual once per 12 months. If you see accounts reported as late when you have an accommodation in place — or any other errors — dispute the information right away to protect your score.
Guidance issued April 1 by the Consumer Financial Protection Bureau says that because of coronavirus, credit bureaus will have 45 days to correct errors on credit reports (they usually have only 30).
Other things to consider
If you normally pay bills by autopay, review those. Change them as needed so you don't overpay accounts or cause an overdraft.
Though utility bills are not typically reflected on your credit reports, it’s smart to add utility companies to the list of creditors you call. Like credit card issuers and lenders, many now have hardship programs for customers affected by the pandemic.
If cash is so short that even with concessions you are not going to be able to pay, know how to prioritize the most important bills and seek sources of help.