Taking Care of Your Credit During Coronavirus
Posted on: 27 April 2020Updated May 06, 2020!
By: Daniela Bucay
During the coronavirus pandemic, it’s more important than ever to be wise with your credit card use and bills, like car, mortgage, rent, utilities, and student loan payments. The COVID shows few signs of slowing down across the country, and the economic effects can be overwhelming. Here’s how Fig recommends handling requests to defer payments and protecting your credit score.
Fast Fig facts:
- Some credit card companies, student loan companies, and auto and mortgage lenders are offering deferments, but others are not.
- Almost all lenders and credit companies who are offering accommodations have made it clear that it is up to consumers to ask for deferments—they will not be automatically offered in most cases.
- Be prepared to offer proof of hardship if and when you request deferments.
- You may decide to use retirement funds to pay some obligations, but there are several factors to consider before you do so.
In any case, you definitely want to protect your credit score while also managing your financial obligations in a reasonable way during this crisis. Remaining credit-worthy during an economic downturn is so important because it means you can have access to more funds should you need them. Nerdwallet has an incredibly useful article breaking down the ways that COVID-19-related payment accommodations, including deferments, may affect your credit.
Getting companies to accommodate your financial situation will require work. We recommend that you make a list of all of the accounts that you pay regularly and that appear on your credit report. You could make a physical calendar when all of your bills are due because, if you’re like me, you have everything on autopay and don’t always know when each bill will hit. Once you know what dates certain payments are due, find out the contact information for each company, and set reminders to reach out to all of the companies at least 3 business days before payment is due, wherever possible.
Also, before you reach out to each company, get supporting documentation: if you’ve been furloughed or laid off, get a letter from the employer or any sort of physical notification you received. If you’ve been sick, get medical records or anything to prove sickness. If you’ve been taking care of children, show school closures. Basically, create a packet of all the evidence that all of these companies will inevitably request once you ask for an accommodation. Having it ready to go from the beginning means you’ll be able to knock off the requests pretty quickly.
Below, we will break down who’s offering accommodations, what you need to do to get an accommodation, and more. Read on for more details on how to prioritize your bills and credit usage in the time of coronavirus!
With all of the layoffs happening, many people fear not being able to pay their credit card bills. Interest for these bills can quickly pile up, adding to the stress most of us experience when we can’t make a payment. A lot of the big credit card companies, including Chase, Citi, and American Express, have launched forms where you can request deferments, waiving of late fees, and other accommodations. It is unclear what exactly each company is offering in terms of accommodations, but most of them have at least made statements expressing that they’re offering some sort of relief. Business Insider published this substantial round-up of several major credit card companies and what kind of assistance they offer.
The major takeaway from the Business Insider piece is that the consumer must contact the company, either by calling the number on the back of their credit card or filling out the deferment request forms that some companies have set up. Deferments will not be automatically applied, and consumers should be prepared to discuss how exactly COVID has impacted their finances such that they cannot make a payment.
If you have a payment on a credit card coming up, we recommend asking your credit card company about relief options ASAP. Please do NOT skip a credit card payment without talking to your credit card company first if you have been affected by the coronavirus in some way, because without documentation that you requested assistance due to hardship, skipping a payment will certainly damage your credit.
Whether or not to skip your car payment really depends on who provided the financing. As Credit Karma reports, many car companies are offering current lessees and owners some relief, but again (I’m noticing a trend here, are you?), you have to contact them to find out what that relief entails. In an effort to boost car sales, many car manufacturers have some enticing deals for anyone buying a new car. If, for some reason, you need a new car, and you have some extra cash, now might be a great time to buy one.
If you cannot decide whether or not to defer your car payment, Kelley Blue Book advises you to thinking about what a deferment means. A deferment means extra time, but it does not mean you get free car use. You may need to foot the bill at the end by having increased interest at the end of the loan, simply because the loan term was extended.
Again, the name of the game is contacting your mortgage lender and being ready to show proof of hardship. If you got your mortgage through Fannie Mae or Freddie Mac, they will offer up to 12 months of forbearance, meaning the payments are postponed, but the interest continues to accrue. You might be able to also renegotiate the mortgage, which might have a negative impact on your credit. You can read more about the mortgage relief during coronavirus at the Consumer Finance Protection Bureau’s website.
Jumbo loans, which are typically mortgages that are bigger than those that can be guaranteed by Fannie Mae or Freddie Mac (meaning they cannot be federally secured), are a little bit different because they’re not mentioned by the CARES Act. As this article in the Wall Street Journal explains, it’s up to each borrower to negotiate any payment arrangements. Many large lenders of these types of loans, including Chase, Wells Fargo, and Bank of America, are offering forbearance, but you need to be diligent about asking what the terms of a forbearance are. Some lenders are first asking that after the forbearance, borrowers repay the deferred payments in a lump sum. Others let you pay it back over time. Advocate for yourself and make sure you obtain a written (email works, too) record of the deferral or loan modification so that, if for some reason, the loan affects your credit in unexpected ways, you have evidence to submit when you file a credit dispute.
If you rent, then you should check if your landlord offers rent forgiveness, waiving of late fees, etc. It’s different from a mortgage because you do not accrue interest, however, you could be evicted, unless your city has passed a law temporarily forbidding evictions.
Many utilities, including internet and wireless service providers, are allowing you to delay your payments and have agreed not to disconnect service for nonpayment during the pandemic. Once again, however, this will require you to contact them!
Federal Student Loans are suspended through September 30th, meaning you do not need to make a payment on them, and interest will not accrue. Another interesting detail about the Federal Student Loan relief in the CARES Act is that if you’re enrolled in a student loan forgiveness program and you remain employed full-time between now and September 30th, those months of non-payment will still be considered as meeting your required number of payments.
We strongly recommend not making any payments on Federal Student Loans during the pandemic because there are no penalties for not doing so, and you can use that money to pay other, more pressing bills. The government’s Federal Student Loan website has a really useful info page that should answer most questions, whether you’re a student, a borrower, or just curious about student loans.
For private student loan companies, the story changes. Most of them encourage you to reach out to them to discuss payment options. Once again, have some proof of the impact of coronavirus ready to go should you need to provide it during your call.
Options for bills that must be paid
Let’s say, however, that you have a bill that you cannot move, and you really want to avoid damaging your credit. If you have a 401(k), IRA, or other retirement plan, you can withdraw up to $100,000 from there without paying the usual 10% penalty. You’ll then get 3 years to pay that money back to yourself, otherwise you will have to pay taxes on that amount. There are other ways that you can use your retirement plan to help during hardship, as detailed in this Thomson Reuters article.
We strongly encourage you to exhaust every other option before dipping into your retirement savings to avoid hardship right now. This is because your retirement account has probably taken a dip, so you’ll be cashing out a higher number of stocks for a lower dollar amount, whereas if you leave that money in there while the economy recovers, it will not only be worth more, but also, the total amount in the account will be larger, meaning larger interest rates. It is, however, nice to know that the option exists should you have to use it.
If you do not have retirement savings, and you’re worried about making bills, that’s when other lending institutions come to play. Always see if nonprofits in your area can do low-interest loans before going the route of more expensive options, but if a short term loan to pay a bill seems like the only option, then do your research and make sure you understand how much the loan will cost in full, how long you have to repay the loan, if the lender charges late fees or late interest (Fig doesn’t!), and so on. If you want to learn more about how to evaluate lenders and call them out on any dishonest tricks, our 5 step guide to compare personal loans is a great place to start!
In sum, most lenders and companies understand that times are tough, and they have put policies in place to make it easier for you to make your payments or get some sort of relief. The exact policies, however, remain vague. All that we can guarantee is that you will need to provide proof of COVID’s economic impact, and you will need to take the first step and contact the lender/company. Free free to contact us at firstname.lastname@example.org, Facebook, and Twitter, if you have any questions regarding your Fig loan payment, need additional information relating to this post, or have an interesting story to tell us about a loan deferment.