Key Takeaways:
- If you’re struggling financially, reach out to lenders immediately to explain your situation.
- Try to make minimum payments on your credit accounts, if possible, to avoid late payment penalties and a credit score impact.
- Your lenders may have hardship programs that can help you during times of financial uncertainty.
- Make sure you’re clear about the terms of any hardship program and how it may impact your credit health.
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If you’ve experienced an unexpected strain on your finances due to personal hardship or a natural disaster, creating a plan is a smart, proactive step to help you navigate this difficult time.
How you can protect your credit health
During times of hardship, you may be forced to face some tough financial choices. If you have multiple loans and/or credit cards, you may need to prioritize certain payments. If your budget is stretched, you may need to focus on urgent bills and high interest loans. High interest loans will cost you more over time, so paying them off first can save you money.
Make minimum payments if you can
It’s a good idea to pay what you can to avoid late payments on your credit report. Ideally, you would pay off the entirety of your credit card balances each month. However, making the minimum payments can help you avoid having negative marks on your credit report.
If you have an installment loan like a student loan or mortgage, paying monthly payments in full will help you avoid late payments being reported to credit reporting agencies.
Be as proactive as you can. If you think you’ll be unable to make an upcoming loan payment, reach out to your lenders as soon as possible to find out if they’re offering any assistance.
Check your credit report regularly
Your credit report details your history with credit. Reviewing and managing your information is an important part of protecting your personal information and tracking your financial and credit goals. Make sure the information that appears is accurate, especially if you’ll be contacting your lenders to discuss your financial situation and accounts.
If you recently paid down a balance but don’t see it reflected in your credit report, it may just need time to update. Lenders tend to provide account updates once a month. You can get free weekly credit reports from each of the three nationwide credit reporting agencies (TransUnion®, Equifax, Experian) at annualcreditreport.com.
If you see something on your credit report you believe to be inaccurate, you can dispute the information for free. You will need to dispute with each credit reporting agency individually, so make sure to read through all your credit reports. You may see a myth online that disputing anything negative on your credit report can potentially help your credit score. Only items on your report that are inaccurate can be disputed and ultimately removed from your credit report.
If something on your credit report is negative and inaccurate and then ultimately removed, it may have an impact on your credit score. The extent of the impact depends on your individual credit history and the type of information that was removed. In calculating credit scores, some types of information are more influential than others depending on the credit score factors.
Know the credit score factors
As you make important credit decisions, it can be helpful to know the influential credit score factors. There are different credit scoring models, but they tend to focus on similar factors.
Credit Score Factors
Here are the factors that make up a VantageScore® 3.0 credit score and their relative impact:
- Payment history
- Credit usage
- Credit depth
- Recent credit
When you get a credit score from TransUnion, it’s a VantageScore® 3.0 credit score. The two most influential credit score factors for VantageScore® 3.0 are:
- Payment history: Missing payments can have a significant impact on your credit score.
- Credit usage: This factor looks at how much of your credit you’re using, your total balances and the available credit you have.
Making payments on time and keeping your credit balances as low as possible can go a long way in building and maintaining healthy credit. Knowing the credit score factors and their relative impact on your credit score can help you make more informed decisions.
Add a consumer statement to your credit report
If you have negative information in your credit report and want to explain your circumstances, you can do that with a consumer statement. A consumer statement is a note that you can use to explain your financial situation and can be seen by anyone who views your report.
When adding a consumer statement to your TransUnion report, you can easily choose from pre-worded options, or you can write your own. You can add a consumer statement online through the TransUnion Service Center. You can log in if you already have an account, or create an account to get started:
How to talk to your lenders about financial hardship
Not all lenders offer hardship or forbearance plans, but if you’re struggling to make payments, contact your lender and explain your situation. You can find their contact information on your credit report or your most recent statement.
You can ask your lender when they report late or missed payments to the credit reporting agencies. Typically, lenders report a missed payment when it is 30 days passed due.
Consider asking your lender whether they offer their customers hardship or forbearance plans. These questions might help you in your conversation with them
- Does your company offer a forbearance/hardship program?
- What are the criteria to apply for forbearance or hardship?
- Is there a difference between forbearance, deferral or hardship?
- How long does it take for a forbearance/hardship to take effect?
- Will fees (e.g., late, overdraft) be assessed while I’m in forbearance/hardship?
- How is interest being calculated while I’m in forbearance/hardship?
- How is my account reported to the credit bureaus while I’m in forbearance/hardship?
Each lender decides how they report during accommodation periods. Hardship programs do not guarantee that late payments will not be reported.
Know the difference between hardship programs
After talking to your lenders about your situation, you may learn that they will place your accounts in forbearance or deferral. Make sure you understand the terms of the programs your lender uses so you can choose what is best for you and prepare for when payments resume.
What is forbearance?
Having an account in forbearance usually means your lender has agreed that you can temporarily stop making payments or make reduced payments on that account for a certain amount of time. When the forbearance program ends, you may be required to repay the payments that were skipped or reduced, depending on the terms of the program.
What is deferment?
A deferred account means the lender has agreed that you can delay payment for a certain amount of time. Instead of paying a lump sum when the relief plan ends, a deferment plan typically adds payments to the end of your loan term.
Lenders may use hardship program terms, like forbearance and deferment, interchangeably. No matter which term they use, make sure you understand how the program impacts your loan and if and how it will be reported to credit reporting agencies.
How lenders may report your accounts during financial hardship
If you have an account in a hardship program, this may show up on your credit report in the Remarks field in your account information section. A comment that says “Payment Deferred” or “Account in Forbearance” will be shown depending on the type of plan you agreed to with your lender.
Various credit scoring models may treat plans and codes differently. You may see different scores while hardship plans are applied to your accounts, depending on where you get your credit score and the model they use.
Keep in constant contact with your lenders
Organizing your credit information and maintaining communication with your lenders are two ways you can help stay in control of your credit health during times of uncertainty. Make sure to save emails and take notes during important conversations with your financial institutions. Write down the name of the representative helping you, the time of the conversation and details pertinent to your account.
You may want to consider reaching out to a certified credit counselor in your area . You may have access to non-profit organizations in your area that can provide guidance and assistance for free.
For further help reading and understanding your credit report, you can use our interactive guide that explains some important sections on your report.
