COVID + Credit: Forbearance and Your Credit Reports
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The Coronavirus/Covid-19 pandemic has led to widespread economic uncertainty, presenting millions of Americans with unforeseen financial challenges and leaving them struggling to keep up with their bills, including rent, utilities, cell service and insurance premiums.
This includes the large number of people experiencing temporary or permanent unemployment. A recent Department of Labor Report estimated that more than 26 million Americans have applied for unemployment during the five weeks since the pandemic shutdown began in mid-March.
For Americans who have lost their jobs, been furloughed or experienced a pay cut during the Covid-19 pandemic, lenders and creditors are offering a multitude of debt repayment options. One of your choices may be forbearance (sometimes referred to as deferred payments), which is an agreement with a lender or creditor that enables the borrower to delay or suspend loan payments for an agreed upon amount of time.
What debts qualify for forbearance?
The term “forbearance” is usually associated with home mortgages, but the truth is any lending agreement you’ve entered into may be eligible for deferred or suspended payments.
Many creditors and lenders are offering special repayment options on a variety of debts due to the severe and immediate economic impact of the Covid-19 pandemic. This includes mortgages, student loans, auto loans, credit card balances, utilities, property taxes and small business loans, though this list is by no means exhaustive.
Depending on what agreements you reach with your lenders and creditors, they may agree to allow decreased or delayed payments for a specific time period of up to 12 months. They may also offer to reduce the interest rate being charged on your debt, but there are no federal guidelines requiring specific terms for forbearance agreements across all industries.
Talk to your lenders and creditors for definitive information on forbearance/deferred payments
Eligibility requirements vary depending on the type of debt you wish to request forbearance for, and each lender and creditor has created its own programs and rules. For more information on setting up forbearance or to learn more about the options available to you, including choices outside of forbearance, contact your lender or creditor directly.
Crucially, you can’t just miss a payment and expect no repercussions without communicating with your lender about your situation. You’ll need to work out a deal with your lender before stopping payment — otherwise, your credit standing could be compromised.
While forbearance may allow you to deal with your short-term financial challenges and help you get back on your feet without jeopardizing your credit rating or credit scores, it doesn’t come without its drawbacks. If you enter into a forbearance agreement, you’re not getting “free money.” Depending on the repayment plan you agree to with your lender or creditor, you may need to repay the interest that accrues during your approved deferral period, and late fees may still apply. Ask your lender if you’ll still be charged late fees, how and when those fees will be applied and how your forbearance agreement will be reported to the national credit bureaus.
COVID + Credit: What you can do now about forbearance or deferred payments
If you’re running out of cash because of a layoff, furlough or pay cut, your first step is to contact your lender or creditor to talk about what debt repayment programs they’re offering and whether you qualify. The following outlines some of the special forbearance arrangements that have been prescribed by the Coronavirus Aid, Relief, and Economic Security (CARES) Act for different scenarios you may be facing now:
Fortunately for people who are struggling to keep up with mortgage payments, federal officials have announced a temporary nationwide halt to foreclosures and evictions for federally backed mortgages. People who have suffered a loss of income due to the COVID-19 pandemic can qualify to reduce or suspend payments for up to 180 days, with specifics depending on their particular situation.
Borrowers whose mortgage loans are backed by Fannie Mae or Freddie Mac, which underpin the majority of loans in the United States, or by the U.S. Department of Veterans Affairs (VA), the Federal Housing Administration (FHA) or the USDA are eligible for help, including options for forbearance and delayed payments. You must contact your loan servicer to request this forbearance.
To combat ongoing misinformation, the Federal Housing Finance Agency reiterated at the end of April that borrowers in forbearance with a federally-backed mortgage are not required to repay the missed payments in one lump sum. Your mortgage servicer will contact you about 30 days before the end of the forbearance plan to see if the financial hardship has been resolved and discuss your repayment options.
You can search for your loan on the FannieMae.com and FreddieMac.com websites to determine whether one of them has purchased your loan from your original lender or call your mortgage servicer directly. In addition, Fannie Mae and Freddie Mac have halted foreclosures and evictions during the Coronavirus/Covid-19 pandemic, so visit their websites for regularly updated information on how to get relief.
If your loan is not federally backed, you will have to call your mortgage servicer to find out whether they offer any Covid-19 pandemic relief. Review your monthly statement or visit your mortgage servicer’s website for information on how to contact a customer service agent.
If you’re a homeowner who doesn’t know what company backs your mortgage, you can find more information about the federal foreclosure and eviction moratorium and related Coronavirus/Covid-19 actions on the U.S. Department of Housing and Urban Development website.
For most federally held student loans, payments and interest are automatically suspended through September 30, 2020, though that date may be extended with additional legislation. You do not need to take any action for this to take effect.
However, some student loans do not qualify for this benefit, including loans under the Federal Family Education Loan (FFEL) Program, private student loans that are owned by commercial lenders and some Perkins Loans that are held by the institution you attended. To request a forbearance agreement or delayed payments on these loans, contact your loan servicer.
(And remember: If you find yourself with additional cash and are able to continue making your payments, even though none are required for the time being, you’ll chip away at your debt and better position yourself for financial security after the Covid-19 pandemic is behind us.)
A significant number of auto lenders are offering forbearance agreements or deferred payment plans during the pandemic. This includes options for existing customers as well as those looking to purchase a new vehicle. Contact your lender or automobile manufacturer to learn more about their specific deals.
Every credit card company has different options and eligibility requirements for forbearance or payment deferrals on your credit card debt. Some may allow you to defer payments while interest continues to accrue over a set period of time, while others may offer to reduce your interest rate or principal payments temporarily. Go to your credit card issuer’s website to learn what options are available and what you have to do to get help. Even if your credit card company isn’t offering a plan that works for you today, it might add new options in the near future, so check back frequently for updates.
Utilities and property taxes
Many cities and states across America are offering relief options for utility bills and property taxes to those impacted by the Covid-19 pandemic. This may include forbearance or deferred payments. Call your local municipality or utility provider for details.
Small business loans
The federal government has committed a significant amount of disaster relief money to small business owners who have been impacted by the Covid-19 pandemic. The original CARES Act included a provision called the Paycheck Protection Program, which provided small business loans that are fully forgivable in many circumstances, making the money similar to a grant. Businesses have to apply for the loan, which was designed to cover about two months of payroll expenses. Although the initial tranche of money has run out, Congress recently passed another bill with hundreds of billions of dollars in additional funding for small business loans.
If you are a struggling business owner, the Paycheck Protection Program may give you an alternative to requesting forbearance or deferred payments, and buy you some time to get back on your feet. Read more about small business relief options at the U.S. Small Business Administration website.
This information may change as the Covid-19 pandemic evolves, but Equifax is committed to working with you and providing ongoing support as it does.
COVID + Credit: Steps you can take now
One important thing you can do right now is to ensure your current credit reports are accurate and reflect any forbearance or deferred payment agreements you may have reached with your lenders. You can get six free copies of your Equifax credit report each year when you sign up for a myEquifax account. If you see something that appears to be inaccurate, you can dispute what you believe to be inaccurate or incomplete.