Protecting Your Credit During a Financial Crisis in 2020

Photo by Karolina Grabowska

Originally Posted On: https://www.mycredittrack.com/protect-credit-during-financial-crisis/

The global health crisis has caused staggering job and income losses around the world leaving many folks to be unable to pay their bills during this challenging time in world history. Adding insult to injury we now have nationwide riots in many of our cities. We want to make sure you have all the information you will need to keep your credit report healthy and avoid a financial crisis.

You need to be in communication with your creditors if you are being impacted by the global health crisis. Many creditors now have programs in place for those being affected by the crisis. For the next 10 months, the three credit reporting bureaus are offering free weekly access to your credit report. Through April 20, 2021, Experian, TransUnion and Equifax will give you access through AnnualCreditReport.com.

This will assist consumers in monitoring their credit during the ongoing health crisis.

Many folks are being negatively impacted by global health concerns at the time I am writing this article and are unable to pay their bills. There are things you can do to work with your creditors but it is important that you do not procrastinate when it comes to making that call.

• You need to ask for help and call all of your creditors before you have an issue. Ask what programs they are offering you since you have been affected negatively by these health concerns. Make note of each program so you are prepared if you can not make the minimum payments due. Most creditors are deferring payments and some are even lowering interest rates depending on your personal situation.
• Pay what you can. At some point, the bills will still need to be paid and you do not want to get yourself in more debt than necessary. If you have any funds that you can contribute, do so. Many creditors are waiving late fees but not interest charges so delaying payments is not going to help you with saving money and you will only go further into debt.
• Sign up for the weekly program at AnnualCreditReports.com so you can monitor your credit.
• Call your local agencies for help. Often I have had good tenants who were unable to pay their rent through no fault of their own. There are several organizations that are in most towns that are there for these situations and give help to those in need. Look into church programs, United Way, Salvation Army, homelessness coalitions and food banks to start lining up resources to get assistance.

You will want to be cautious about adding more debt during this time. It will only raise your stress levels and in the long run, is not good for your overall financial health.

• Creating a realistic budget is important during this time. It is important to look at anything and everything you can cut from your budget and the earlier the better. You can ask subscriptions and membership programs if they are making offers to assist folks during this time. Here are some areas to look at.
  • Cable, cell phone, utilities, internet and subscription streaming services.
  • Gym and spa memberships, monthly classes.
  • Shop your insurance policies, homeowners and auto.
  • Look for local food banks to assist with supplementing your groceries.
  • Avoid online shopping.
  • Cancel lawn and housekeeping services.
  • Learn to live without credit. Put your credit cards away and only spend what you have.

If you miss a payment this can have a detrimental effect on your credit. Your score will immediately drop once it is reported and might be affected for months after the incident. It will definitely remain on your report for 7 years.

However, there is no better time to communicate with your creditors before this happens. For the first time in my lifetime, creditors are more than willing to work with consumers who were negatively affected by the current financial situation.

Remember that being late does not necessarily mean you are 30 days late. Being 30 days late is what affects your credit. Even if you are late, often lenders will add the principle and interest payments to the back of the loan for a small admin fee and any late payment fees. It really just depends on the lender. You can call and try to negotiate the best deal if this happens.

Accounts in forbearance can still be reported as late or missed payments by lenders and creditors to the credit bureaus they report to. Make sure you are verifying everything when asking for payment relief.

If however, that time has passed and you are more than 30 days late, I would encourage you to still reach out. If the creditor knows you are making a good faith effort you can always try a Goodwill Letter to negotiate the removal of the late payment. With a plausible explanation and verification of the situation being resolved, I feel there is no better time for a Goodwill Letter to work.

The most important thing I can convey to you that communication is key with your lenders. It does not benefit you to hide or avoid the conversation. During a crisis, lenders and creditors will have programs that may help during times of economic stress. If you wait to call you can miss out on programs that could make your life easier during a stressful time.

We all heard on the news how Mortgage Lenders were going to protect borrowers from foreclosure and evictions. Mortgage servicers are now required to help consumers face these challenges during the global health crisis crisis.

• The Federal Housing Finance Agency (FHFA). Recently, as we have all seen on the news, Fannie Mae and Freddie Mac, which are overseen by FHFA, have required mortgage servicers to start moratorium on foreclosures and evictions for all borrowers who have reported that they have experienced hardship during these difficult times. You can review the program at FannieMae.com and FreddieMac.com.
• The Department of Education is allowing its borrowers to pause student loan payments for at least 60 days. Visit StudentAid.gov/ and ed.gov/ for the latest updates.

Once you get through this and you are back on track it is important to do some things to protect you from the next crisis. The people who can get through these types of situations unscathed are prepared ahead of time.

• Create a weekly/monthly budget and stick to it.
• Start saving with a goal of 6 months’ expenses to start.
• Stay out of credit card debt. Pay down those balances and live on what you make.

Every few years we go through some tough times as a nation. When things are good we tend to be less fiscally responsible and are less concerned with savings. It is important for the future that you remember when there is another financial crisis down the road and how you need to be prepared!