Credit may not be top of mind for many consumers these days. But in the form of epidemics and the associated economic crises, they want to give it some attention.
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COVID and Credit
The good news is that consumers, by and large, improved their credit profile during the epidemic despite record unemployment and large-scale trade-offs.
The aid programs that were put in place worked. With the help of federal stimulus payments, expanded unemployment benefits, lender relief agreements, and changes in habits, Americans used less credit, paid off debt, paid less late, and improved their credit scores. The average FICO credit score was 711 in July, behind the score, according to the company Fair Isaac, 5 points from a year earlier. A FICO score ranges from 300–850 and is one of the most widely used metrics to determine a consumer’s creditworthiness.
“It certainly feels like many consumers have taken a careful step forward in terms of savings and spending,” said Matt Komos, vice president of research and consulting at credit reporting agency TransUnion. “I think there is general vigilance in the American consumer.”
The bad news is that the financial health of consumers may soon be heading towards a recession. Some of the relief measures are ending or have ended, Congress is yet to reach agreement on a new relief package; Meanwhile, the job market and economic reforms remain fragile.
Credit profiles do not yet reflect those events. There is usually a lag time between a major economic event and when it is reflected in the credit files of Americans.
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For example, during the Great Recession, months after the recession officially ended, until the end of 2009, the average national FICO score did not hit its lowest point, according to a blog Monday, FICO Score and Predictive Analytics The vice president, Ethan Dornhelm, wrote. In the case of the COVID-19 pandemic, this may be a significant lag due to extraordinary steps being taken to help consumers.
TransUnion said it is seeing a slight increase in 30-day late payments, possibly an early indication that lenders are under financial pressure and may default. The measure increased marginally in August for the two biggest payments most consumers face – auto and mortgage.
“I think the full impact of the epidemic on their credit is not yet known and that is what concerns me,” said Paul Golden’s spokesman for the National Endowment for Financial Education. “Even with good credit and little debt and some savings, after running for more than six months or potentially a year, some people can cope with this stress.”
New Credit Normal
Consumers should be aware that some of the rules around credit have changed, and keep in mind that the decisions they make to avoid these difficult times will affect their financial future.
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For one thing, credit report checking has become easier. As part of a large-scale relief package passed by Congress, known as the CARES Act, consumers can view their credit reports annually from three credit reporting agencies online for free at onlinecreditreport.com. This extended access is available until April 2021.
Additionally, consumers who reached some sort of relief agreement with their lender due to COVID-19 – such as a refusal, underpayment or other arrangement – should generally not see their credit score deteriorate.
The CARES Act requires that accounts that were good prior to relief accommodation related to a COVID be in good standing. Those who were criminals cannot drown further but can be turned on. This rule remains in force 90 days after the national emergency of COVID-19.
However, if you do not strike any type of relief agreement, any late payments or other negative steps will still be reflected on your credit report.
If you are in a relief agreement, but feel it has been improperly reported, reach out to your lender and credit agencies.
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Keeping credit health
Consumers who are struggling should seek help from their lender as soon as possible.
TransUnion estimates that about 10% of consumers are already using at least one respite dwelling. But experts say many people who deserve help have not yet sought help.
Consumers urge finance and loan experts to get help to people where they can. Be sure to ask questions about conditions, such as how long the assistance will last, if interest will be accrued, or if a late fee may still apply. And how your agreement will be communicated to national credit reporting agencies.
Consider adding a statement to your credit report to explain any negative activity. It may help to explain a late payback due to a COVID-related job loss or illness.
Any help you get will not last forever.
Stabilize your home finances as much as possible with relief opportunities and then assure to come up with a long-term plan. If you have missed the clock on a relief agreement, look for an extension if needed. If you need further assistance, consider talking to a non-profit credit counselor. The Financial Planning Association and several other certified financial planners organizations are providing free assistance to those affected by COVID-19.
Beverly Anderson, president of Global Consumer Solutions at Equifax, said everyone’s credit status is unique. All the same, she reminds consumers of the basics for healthy credit: establishing and maintaining responsible credit habits, like paying bills on time; Pay off the loan as soon as possible; Apply for credit sparingly and keep your limits below their limits.
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