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Help Protecting Your Finances and Credit Score during COVID-19

Thursday, 09 April 2020 04:00
An older man sitting at his laptop thinking about his credit score being affected by Coronavirus

The fallout from COVID-19 continues to threaten the personal finances and wellbeing of individuals and families. If you’re struggling with financial issues and worried about the impact on your credit score, there are some actions you can take.

We’ll explore ways you can temporarily reduce your spending, conserve cash, and maintain your credit score. Discover four financial tips to help overcome a budget crunch, including delaying loan payments and obtaining other assistance.

What is FICO?
Let's start with a little background. FICO stands for Fair Isaac Corporation, the organization that created the lending scoring system. To create credit scores, FICO uses information provided by one or more of the three major credit reporting agencies — Equifax, Experian, and TransUnion.

Lenders, such as CAP COM, use FICO Scores when deciding who is approved for loans, for how much, and at what interest rate. The scores, which typically range from 300 to 850, help lenders determine how likely borrowers are to pay off their debt.

What makes up a credit score?
Your credit score is based on five categories:

  • Payment history (35% of total score) – making your payments consistently on time raises your score
  • Credit utilization (30%) – formula of revolving credit you are using divided by your total eligible revolving credit; lower ratios result in better credit scores
  • Credit history length (15%) – generally, longer credit histories mean higher credit scores
  • Credit mix (10%) – having a variety of credit accounts can increase your score
  • New credit (10%) –  number of new credit accounts and new hard inquiries; having a lot of new accounts and inquiries can lower your score

Tip 1: Make the Payments that You Can

With payment history the most important factor toward your credit score, try to continue to make your payments as usual.

Part of this equation is to reduce spending so that your revolving credit bills are lower. The other part of this equation is savings. Experts recommend having six months’ worth of your income as an emergency reserve fund. Now more than ever, that emergency fund will be put to the test.

If bills are coming due, and you cannot make the payments, contact CAP COM and your other creditors to make them aware that COVID-19 has impacted your ability to pay. If you fail to make a payment, your credit score will likely drop.

Tip 2: Defer Consumer Loans

For people impacted by COVID-19, the objective is to conserve cash, and deferring payments – or postponing them for a short period of time -- on certain loans can help achieve that goal.

Art Chuang, CAP COM's VP of Loan Servicing & Loss Mitigation, recommends that you defer consumer loans first. In this unprecedented time, lenders are working with consumers so putting off payments temporarily will not impact your credit score.

CAP COM is offering its members the opportunity to defer home equity, auto loans, personal loans, and Academic Advantage student loans for up to 90 days with no penalty fees. This buys you time on your payments for up to three months. Interest on loans will continue to accrue, and deferments cannot be taken on Academic Advantage loans if they are interest-only loans.

CAP COM’s 90-day deferment offer applies to payments on its credit cards, too.

If you would like to speak to a member of our team about your situation, please contact us by email at loanrelief@capcomfcu.org or call (800) 634-2340.

Tip 3: Mortgage Forbearance

Mr. Chuang said that after you have deferred your consumer loan payments first and still need to find ways to conserve cash, a forbearance on your mortgage is an option.

Gov. Andrew Cuomo signed a relief package in March that included mortgage relief. For members with mortgages through Homeowners Advantage, this relief comes in the form of a forbearance of three months. This means that your mortgage payments are delayed for three months. During this period, your credit score will not be impacted negatively, and you will not incur late fees.

At the end of the three months, we will work with you on either a reinstatement, repayment or modification of your existing mortgage. If you find you need an extension to the forbearance, we would consider it on a case-by-case basis.

Keep in mind that if your mortgage is escrowed and you are seeking a modification, the escrow portion of your payment might increase because we still need to pay taxes and insurance on your behalf.

Tip 4: Personal Emergency Relief Loan

Emergency Relief Loans are personal loans, which means your credit needs to be checked. If you qualify and are approved for the loan, it counts as new credit. Both the hard inquiry on your credit report and the new credit can slightly impact your score negatively at first. When you start making on-time payments, your score can go back up again.

If you’re a CAP COM member as of March 13, 2020, and are experiencing financial distress, you may qualify for our Emergency Relief Loan. You can borrow up to $2,500 at a low, fixed rate with no payments for up to 90 days.

Conclusion: Talk to Us

Whatever action you take, please talk to us. CAP COM is here to work with you on solutions and find ways to ease your burdens. Call (800) 634-2340, and please be aware that wait times may be a little longer than normal.