Did the pandemic hurt your credit score?

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The global coronavirus pandemic has led to a host of consequences for Americans’ personal finances. From unemployment to business closures, a surprisingly resilient stock market to a booming real estate and mortgage industry, the only constant has been change this past year.

But one unintended consequence of the pandemic may have been a hit to consumers’ credit scores.

A large part of that ding to credit scores comes from people who just flat-out cannot pay their bills or obligations on time. But that describes a smaller percentage of households than you may think, as there have also been measures to provide relief to those struggling to pay their mortgage or credit cards.

For instance, the CARES Act, passed by Congress in March of 2020 as an immediate and forceful response to the lockdowns caused by the pandemic, is now in its third wave of relief. Some of that relief calls for people who have a federally backed mortgage or federal student loan to defer their payments without penalty. Other banks, lenders, and credit cards followed suit by voluntarily allowing deferral of payments or forbearance.

The crux of all of these relief efforts is that the lender will not report the unpaid debt or loan to the credit bureaus, so a borrower’s FICO Score won’t take a nose-dive during the pandemic. Point blank, lenders aren’t supposed to submit that a borrower has missed a payment when some other amnesty, deferral, or forbearance is in play.

But that’s exactly what has happened to a surprising number of consumers, despite the safeguards that are supposed to be in place. Even if they have good intentions and endeavor to follow these federal or voluntary debt relief guidelines, credit scores are rife with errors and inaccuracies like never before.

In fact, according to the U.S. Public Interest Research Group, consumer complaints about errors on their credit reports to the Consumer Financial Protection Bureau have reached all-time highs.

Of course, the problem of errors and misreporting is nothing new, and a comprehensive 2012 Federal Trade Commission study found that about 1 in 4 credit reports had at least one error. Inaccuracies on credit reports have only grown steadily since then, and it was probably close to 1 in 3 even before the pandemic caused mass chaos.

But many lenders are essentially getting their signals crossed, reporting a borrower as late to the credit bureaus even if they’ve been granted a deferral or forbearance. What’s worse, they aren’t responding to borrower and consumer issues as quickly – if at all.

In just the past six months, U.S. consumers have submitted a mind-boggling 13,000 complaints to the FTC, claiming that their grievances with the credit bureaus were not addressed and answered within 30 days. In 2019, there were only 2,000 complaints of that nature total for the whole year, an increase of roughly 550 percent.

And in 2020, about 50 percent of the FTC’s overall complaints were about credit and credit reporting. According to an agency spokesperson, the top two complaints were “incorrect information on credit reports” and number two, “problems with a credit reporting company’s investigation into an existing problem.”

So, what’s the reason for all of the inaccuracies and delays? It’s not common knowledge yet that the credit reporting companies got a break when the pandemic started, too. In April of 2020, the Consumer Financial Protection Bureau relaxed credit reporting laws that mandated the bureau look into a dispute and respond within 30 days. Instead, they now only need to make a “good-faith effort,” which creates ambiguity.

Despite the CFPB’s official statement that the credit bureaus “remain responsible for conducting reasonable investigations of consumer disputes in a timely fashion,” and “the Bureau expects [them] to make good-faith efforts to investigate disputes as quickly as possible,” banks, credit card companies, auto lenders, student loan organizations, and mortgage companies are more overwhelmed – and less accountable.

Commonly, borrowers under a forbearance or deferment see those show up as lates on their credit report, as we mentioned, which leads to steep credit score drops. There are several bills in Congress that endeavor to clarify and clean up the credit reporting industry, but the situation is still treacherous for consumers.

The best thing you can do to protect yourself is to communicate (and double-check, then confirm again!) with your bank or lender if you’re not making any payments for any reason.

Pull a copy of your credit report periodically from annualcreditreport.com or the individual credit bureaus, and document every phone call, payment, and correspondence with your banks or lenders.

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Of course, you can also call Blue Water Credit if you need more effective credit restoration solutions or just solid information. We’re here to help!

 

 

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