It’s terrifying to suddenly find out that you won’t be getting another paycheck. It’s easy to go into panic mode, especially if you have others depending on you to keep the lights on and stomachs full.
Across the country, utility companies are responding to the COVID-19 shutdowns in Southern Maryland and across the country by promising not to turn off their services when bills are overdue. This allows people to use unemployment insurance checks for more important items, such as food.
Once the initial shock wears off, there are things you can do to mitigate your situation and, hopefully, save your credit score.
Start by speaking with your lender
If you can’t make your house payment and haven’t yet contacted your lender, put this one at the top of the list of things to do. Many lenders have let you fill out online the required paperwork for requesting forbearance, making it a lot easier than sitting on hold for lengthy periods of time if you call.
Some lenders are offering forbearance only, and the details vary, depending on lender. Forbearance allows the borrower to miss payments, often penalty-free, and make them up at a later date.
It’s important to understand the difference between forbearance and forgiveness. While this option offers immediate relief from one of our biggest payments each month, many borrowers don’t understand that forbearance isn’t forgiveness. Those missed payments will need to be paid, and many lenders will be demanding a lump sum.
Maura McDermott at Newsday.com tells the story of one couple in Long Island, NY, whose lender is allowing them to skip their house payments for three months without penalty, “but then all the missed payments would be due in a lump sum in four months.”
Few Americans are able to come up with thousands of dollars in a lump sum after several months of unemployment.
Under The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), you may be offered additional options if your loan is backed by the Federal Housing Administration (FHA), the Veterans Administration, Fannie Mae, or Freddie Mac.
First, the CARES Act “provides several levels of relief to home-loan borrowers, including the right to request two periods of mortgage-payment forbearance or suspensions totaling up to 360 days,” says Russ Wiles of the Arizona Republic.
The National Association of REALTORS released an analysis of the act and says that while “regular interest can still accrue,” additional fees, such as penalties and interest, won’t “be assessed for the forbearance.”
Visit the U.S. Consumer Financial Protection Bureau’s website for additional information on the various options available to help you with your mortgage.
Your other monthly bills
We mentioned earlier that many utility companies have agreed to keep their services running, despite non-payment. Typically, this doesn’t mean they won’t be tacking on late fees, and it doesn’t mean you won’t be faced with a huge bill at the end of the crisis.
It’s challenging right now to avoid the former, but the latter can be handled by whittling away at your bills. Pay what you can, even if it’s just a small amount.
Once we’re back to business-as-usual, folks will be facing huge bills, and those disconnect notices will go out. You’ll be glad you paid at least part of what you owe.
With everything else going on right now, it seems almost petty to think about what all this is doing to our credit scores. It will be interesting to compare the average American’s score pre- and post-pandemic.
In the meantime, order your credit reports from the big three reporting agencies. Normally, every American is entitled to one free credit report every 12 months from AnnualCreditReport.com.
That has changed, however. Starting April 20, 2020, the “Big 3” (Experian, TransUnion, and Equifax) will be providing a free credit report every week for the next year.
While there isn’t much we can do to prevent negative entries right now, we can protect our scores by combing through each report to ensure accuracy.
The folks at Equifax recommend that you also add a consumer statement to your credit reports: “You can add a brief 100-word statement to your credit reports to explain your situation.”
Four in 10 American adults lack the funds to cover a $400 expense, according to a 2018 Federal Reserve report. Undoubtedly, it’s even worse than that now. Don’t hide from your financial problems. Be proactive, and keep track of where what little income you have right now is going. Communicate with lenders and others and keep an eye on your credit score.
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