How To Avoid Bad Credit As Protections In The CARES Act Expire

As a response to the financial turmoil caused by the coronavirus pandemic, Congress passed an unprecedented relief package in late March that was worth more than $2 trillion. Known as the CARES Act, one of its provisions temporarily amended the Fair Credit Reporting Act to halt adverse credit reporting during the health crisis in certain cases. But this provision is only in effect for 120 days after the COVID-19 national emergency is declared over, which will be July 25.

Here’s how what that means. If a creditor made an accommodation for you — like letting you defer one or more payments, allowing you to make partial payments, or modifying your loan contract in another way — because your finances were impacted by COVID-19, and your account was in good standing at the time, it is required to continue reporting your account as current to the credit bureaus.

Some of these accommodations were actually mandatory. Federal student loan borrowers, for instance, received an automatic six-month deferment on payments. Mortgage holders with federally subsidized housing or properties financed through Fannie Mae, Freddie Mac or the Federal Housing Administration were protected by a 120-day moratorium on evictions and late fees. 

However, most consumers who were already struggling to pay rent or keep up on debt repayment had to work out a deal with their individual lenders ― and they were not guaranteed to receive a break. Those that did are required to stick to their repayment plans to avoid negative marks on their credit, and in the meantime, lenders must continue reporting these loans as current and in good standing. In April, the Consumer Financial Protection Bureau issued a statement urging creditors to work with borrowers who needed help and comply with the protections put in place by the CARES Act. “Consumer report information is critical to consumers and industry in determining who obtains credit, insurance, and housing, and at what price, and who obtains employment in many cases,” the CFPB stated.

But now that we’re in July, the timeline on those protections is ticking. Soon, borrowers will be expected to resume payments. And in many cases, mortgage holders will be expected to make up for the payments they skipped, while renters will need to make good on their deferred rent money.

Of course, we’re still experiencing the economic impact of shutdowns, and the ripple effects may continue for some time. If your lender or landlord cut you a break during the pandemic, you may wonder whether you’ll be in the financial position to resume payments or make up for back-pay once grace periods are over. And even if you can, there’s a chance that errors in credit reporting over the last few months dinged your score anyway. So here’s what you need to know about protecting your credit as we continue navigating the pandemic and the CARES Act.

Know your rights

Once certain protective measures under the CARES Act end, all normal credit reporting rules apply. However, your lender or landlord can’t retroactively apply negative reporting against you once the grace period is up, according to Kate Bulger, director of business development at Money Management International, a nonprofit financial counseling and education organization. For example, creditors can’t apply late fees that were waived or report that you missed payments during the deferment period. 

Keep in mind, though, that once the CARES Act protections expire, any payment issues you run into from that point forward will be reported to the credit bureaus. If you had a mortgage payment past due, for example, and still haven’t paid it once the grace period ends, your mortgage lender will likely report the loan as delinquent. “But if someone falls behind, then catches back up before the grace period ends, that information would not appear on the credit report,” Bulger said.

Ask to keep it off the record

Even though, technically, creditors can report missed payments or delinquent accounts once grace periods are up, you may be able to convince them to continue suspending negative reporting. “No option is completely off-limits, especially if you have paid your bills on time prior to COVID,” said Roslyn Lash, an accredited financial counselor and money coach.

That isn’t likely to happen if you simply stop paying your bills, of course. But if you show a good-faith effort to bring your account current, there’s a chance they may be willing to cut you some slack. “Creditors don’t always say yes, but many will allow it as long as you’re adhering to the catch-up agreement,” Bulger said.

Don’t wait until the last minute to address a problem

It was probably stressful enough to call up your lender or landlord and ask for a break on payments the first time. But if your income still isn’t what it used to be or you haven’t saved up enough for a lump-sum back payment, ignoring the problem will only make it worse. 

“Lenders know that consumers are struggling during this pandemic. They do not, however, know your specific situation,” Lash said. “The only way to address repayment possibilities is by making contact and addressing the situation head-on.” If you communicate early and honestly, Lash said you may be able to get late fees waived, have interest rates reduced or payments deferred even past the original CARES Act deadline.  

However, Bulger added that you’re much better off working to negotiate something before the grace period expires, even if that means extending the repayment plan beyond the original agreement. “The sooner you reach out, the more options you’ll have to get caught up,” she said. 

Come to the table with a plan

It’s a good idea to come to your lender or landlord with a solid plan of action for getting caught up, rather than simply letting them know you don’t have the money right now.

If you’re renting, for example, present your landlord with a few suggestions for how you plan to make up for past rent payments. If you have a mortgage, there are many options available right now to help; Fannie Mae and Freddie Mac loans, in particular, have very generous options, according to Bulger. The key to taking advantage of many of them, though, is reaching out for help before the CARES Act expires.

And if you’re uncomfortable with negotiating a deal on your own — or aren’t sure where to start — it’s possible to get help from a professional. Nonprofit credit counseling agencies, for example, are equipped to reach out to lenders on your behalf. And their services are a lot less expensive than debt repair companies, if not free.

Check your credit reports for errors

Once the protection period is up, Bulger recommended checking your credit reports periodically to make sure there aren’t any errors. You can get a free copy of your credit report from each of the three major bureaus ― Equifax, Experian and TransUnion ― once per year for free at AnnualCreditReport.com. And if you do find a mistake, you can dispute it through the credit bureau’s website. Once you submit a dispute, the bureau has 30 days to investigate and provide a response. 

“As with almost everything financial, acting sooner on all of this is going to get [you] a better outcome,” Bulger said. “Delaying action may mean more stress and fewer options.”