The CARES Act offers some credit protections for those who work out payment arrangements with lenders, but misreporting is still possible
If so, you should be watchful about any potential fallout on your credit report. Even though the Coronavirus Aid, Relief and Economic Security Act (CARES Act) does provide some protection for credit impact if you avail of payment relief in these unusual times, you will still have to be vigilant to make sure your credit score is not impacted.
Misreporting could impact your credit score
For instance, even though the CARES Act put federal student loans into automatic forbearance for a period of time, and also protected against any credit fallout from this action, Great Lakes, a student loan servicer made news by misreporting on these loans. This misreporting had the potential to impact the credit of millions of borrowers, and some of them have reported seeing a drop in their credit scores.
And at least one consumer has filed a complaint with the Consumer Financial Protection Bureau stating that their credit score has been impacted after availing of coronavirus-related relief on their card payments.
According to the consumer, “At the time the Corona virus was starting to affect me … all banks I work with extended relief and proactively offered to work to delay payments with no consequence.”
The consumer reported that they held on to cash and delayed making payments, but the bank reported their payments as late anyway, and the consumer’s credit score dropped “significantly.”
The bank “tells me I was required to proactively submit a request form but did not communicate this to me,” the consumer said.
Working with lenders on coronavirus relief efforts
In the case of credit card payments, forbearance or other relief related to the pandemic is not automatic and you will have to contact your lender to ask for help.
Loan forbearance refers to an arrangement whereby you will pay a reduced amount, or nothing at all, for a specified period of time, which could run as long as a year.
At the end of the forbearance period, you will have to pay back the amount on forbearance, including interest, possibly in installments. You will also resume making your regular payments. Thus, a forbearance arrangement does not offer you a free lunch.
Forbearance could take the form of skipping monthly payments without penalty or lowering your interest rate. You could refer to your card issuer’s website to find out what sorts of relief it is providing.
CARES Act credit protection
The CARES Act provides some credit reporting protections for those who work out any such relief arrangements with their lenders. If you and your lender have made any agreement, the lender should report you as current on your payment to the credit bureaus.
However, your account should have been current at the time you entered into this agreement. If you were already delinquent at the time you and your lender worked out a deal, your account will be reported as delinquent until you take care of the delinquency. After that, your lender will have to report you as current.
The legislation requires lenders to follow these provisions for any arrangements made between Jan. 31, 2020 through either July 25, 2020 or until 120 days after the coronavirus national emergency is called off.
How to protect your credit if you ask for help
When you work with your lender, make sure you understand the terms of the arrangement, and find out how it plans to report your information to credit bureaus.
Don’t forget to keep a record of all your interactions, including a written copy of the arrangement you work out. And check your credit information to make sure that there is no misreporting. The Fair Credit Reporting Act offers protection against misreporting of credit, and the Federal Trade Commission advises on how to handle this sort of situation.
Amy Thomann, TransUnion’s head of consumer credit education, advises, “Once you’re enrolled in an accommodation, check your credit reports regularly to confirm the lender is reporting the account the way you expect.”
She noted that all three nationwide credit reporting agencies are offering free weekly access to your credit reports through April 2021 at AnnualCreditReport.com.
“If you think the account is being reported incorrectly, you may want to reach out to your lender to get more details,” Thomann said. “You can also dispute the account inaccuracy with the credit reporting agency where you found the information.”