As the pandemic hits the economy hard, lenders and credit card issuers are offering payment modification programs such as forbearance and deferrals.
The coronavirus relief package enacted March 27 requires that accounts that were in good standing before modification be reported as current as long as the consumer abides by the agreement.
But for many consumers with federal student loans, relief over a 6-month automatic pause on payments turned into dismay as credit scores plummeted. Consumers complained on social media that their accounts were wrongly reported as delinquent or in non-payment status.
That’s not how it was supposed to work, says credit expert John Ulzheimer, who has worked for credit bureau Equifax and scoring company FICO. He says student loan servicers are working to address problems, and he hasn’t heard of similar issues involving other types of lenders or credit card issuers.
If your credit score drops, here's how to diagnose what's going on and what to do next.
First, check your credit reports
Whether you have payment modifications or not, it’s a good idea to regularly check that your credit activity is being reported correctly.
Through April 2021, consumers can access free credit reports weekly from each of the three major credit bureaus — Equifax, Experian and TransUnion — by using AnnualCreditReport.com.
Once you enter identifying information and answer some verification questions you can download your full credit reports. It’s worth checking all three; they may contain slightly different information.
Look at any account where you have a payment modification in place. If you were on time with payments before, the creditor is not allowed to mark your account as delinquent during the agreement period. If your account was delinquent before, it can still be reported that way — but if you bring it current, the creditor must start reflecting that.
Pay particular attention to your student loan accounts. The relief package specifies that federal student loan accounts should display as if borrowers made on-time payments throughout the 6-month pause ending Sept. 30. Great Lakes Educational Loan Services acknowledged Wednesday that it had mischaracterized the accounts of nearly 5 million borrowers and is fixing the error.
Checking your accounts “is a really good reason to take advantage of the ‘free every week’ credit report option offered by the credit reporting agencies,” Ulzheimer says. “You'll be able to see how your credit reports are being updated and if they are being updated as per your understanding.”
Other reasons for a drop in score
Ulzheimer notes that while the relief package dictates how accommodations are reported, there’s no guarantee your score won’t go down for other reasons.
If you see a big drop and you’ve verified your accounts with modifications are being reported correctly, look for other causes. Reasons for a drop in your credit score can include:
You may have new derogatory information — like late payments, collections or repossessions. Check your accounts without payment modifications to see if the trouble lies there.
Your balances on credit cards may be high relative to your credit limits. The portion of your limits you have in use is called credit utilization. The higher it goes, the worse for your score — but the damage can be reversed fairly quickly when you pay balances back down.
You may be the victim of identity theft or credit card fraud, which raised your utilization or caused negative marks on your reports.
You co-signed on new credit for someone who then didn’t pay as agreed.
If you find an error on your credit reports
If you see an error in how your accounts are being reported, you have a right to ask that it be corrected.
The three credit bureaus have portals on their websites for credit report disputes. That’s typically the fastest way to get a mistake corrected. Normally, lenders have 30 days to investigate the error; the Consumer Financial Protection Bureau is temporarily extending that to 45 days.
Other errors should also be corrected. Things like addresses you’ve never lived at or accounts that you did not open could suggest identity theft.
If you run into trouble getting an error fixed, you can complain to the Consumer Financial Protection Bureau.
Certified financial planner Erin Voisin of EP Wealth Advisors in Torrance, California, says she advises clients to sign up with a personal finance website that will alert them to changes in credit reports. That’s how she was alerted to an unauthorized credit inquiry, she says.
If you find you made the mistake
Sometimes, a mistake is on your end. If you misunderstood the terms of your agreement or your obligations, you can ask the company involved for a goodwill removal, Ulzheimer says. But the company is not obligated to offer it.
Contact your creditor and explain what happened, and ask if it will remove the negative mark on your account. The more clearly you explain what you are asking for, the easier it will be to get an answer. Pick a time when you can be calm and to the point — being stressed and overtaxed can hamper clear communication.
Ask to record phone conversations, and remember to take screenshots of chats and save emails so you have a record of what’s agreed to. Then check your free reports in coming weeks to make sure the agreement is being honored.