IN ADDITION TO ALL OF THE OTHER damage it has caused, the coronavirus pandemic has taken a toll on many individuals’ credit scores. If you lost your job because of the crisis, for example, and fell behind on your bills, your score is in danger of a precipitous fall. Need some extra cash until you’re back on your feet? Maxing out your credit cards or applying for several new cards at once could hurt your score, too. // The Coronavirus Aid, Relief and Economic Security (CARES) Act, which Congress passed last spring, includes some important provisions for borrowers (see below). Even if you’re not facing difficulties now, it’s not a bad idea to brush up on steps you can take to keep your credit in good shape. You’ll be armed with knowledge in case you need access to credit later—and you’ll keep your credit reports in top condition by monitoring them for mistakes or fraud.
CHECK YOUR CREDIT REPORTS
Through April 2021, you can get a free credit report online every week from each of the major bureaus—Equifax, Experian and TransUnion—at www .annualcreditreport.com. Typically, the free reports are available only once per year, but the bureaus have temporarily increased access in response to the coronavirus crisis.
Checking your credit reports closely and regularly is especially important if you have an “accommodation” on a loan—that is, forbearance or other relief, such as that available under the CARES Act. But regardless of whether you have an account in forbearance or in another program, make sure your credit reports are free of problems. Check that your name, current residence and previous addresses are listed correctly and that you recognize each account and inquiry on your report. If you see a credit card or loan that you never opened, a collection account that doesn’t belong to you, or a “hard” inquiry (more on hard inquiries below) from a lender or some other entity with which you’ve never done business, that may be a sign that an identity thief is at work. Review all legitimate accounts for accurate reporting of their payment history and balances.
If you find an error or an indication of fraud on your report, contact the lender (or other company that furnished the information) and ask it to fix the problem. You should also file a dispute with each credit bureau reporting incorrect information—that preserves your right to take legal action if the issue isn’t resolved. You can get more details and submit your disputes at the website of each credit bureau (Equifax.com, Experian.com and TransUnion.com). For more on how to successfully combat errors and fraud, see “Battle the Credit Bureaus… and Win,” Oct. 2019.
To help you keep tabs on your credit reports, sign up for a free service that sends you an alert via e-mail, text message or a mobile app if a significant change pops up, such as a new inquiry or account. A couple of the bureaus have their own programs that offer free monitoring of the reports they issue: TransUnion, with its true identity service, and Experian, with its FreeCreditScore.com site. Or you can use a third-party service, such as CreditKarma.com, which provides free monitoring of your Equifax and TransUnion reports. When you sign up for any service, check that you won’t have to pay for it after a free trial period. If you must enter credit card or bank account information when you enroll, that’s a sign that you may be charged later.
MEND YOUR CREDIT SCORE
Credit scores, which are calculated based on information in credit reports, are an important measure of a borrower’s credit health. FICO and VantageScore are two large scoring companies, and the standard scale for both is 300 to 850 (specialized scores designed for certain types of lenders or other companies often run on different scales). You may qualify for a loan with a credit score in the 600s, but an excellent score of about 750 or higher positions you to get the best terms, such as a low interest rate. A healthy credit history may also help you get an apartment, a wireless plan or a low rate on homeowners or auto insurance.
Payment history is the most influential factor in your credit score. If you’re late by 30 days or more on a debt payment and have no accommodation from the lender, your credit score will take a blow from the resulting delinquency on your credit report. Or if you miss several payments for bills with another company that doesn’t typically report payment history directly to the credit bureaus, such as a cellphone or utility service, the account may be sent to collection—and that likely will show on your credit report and harm your score significantly.
The total impact of delinquencies depends on three main factors, says Tom Quinn, vice president of scores for FICO, which provides the credit scores that lenders most commonly check. One is the severity of the delinquency—missing a payment by 90 days is more damaging than being 30 days overdue, for example. How often you have paid late is a factor, too; a pattern of missed payments on multiple accounts is detrimental to your score. And the more recently you skipped a payment, the more it hurts your score. As time passes, the delinquency becomes less harmful.
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