What to do if abstaining from the coronavirus unfairly harms your credit score
The coronavirus relief bill known as the CARES Act was passed in March 2020, promising a bounty to federal student loan borrowers: an interest-free suspension of payment via an automatically granted forbearance that would not affect consumer credit scores. Subsequent government measures extended this until September 2021.
Unfortunately for some, it didn’t turn out that way. Some borrowers have reported that their credit report and credit scores have been significantly impacted by forbearance.
For example, a student loan borrower claimed on Twitter on May 9, 2020 that his credit score dropped nearly 60 points because his federal loan officer misreported his payment status. At the same time, similar complaints about the effects of forbearance on credit began to surface on Reddit and other platforms.
If you’ve been granted coronavirus-related forbearance, whether on federal or private student loans, here’s what you need to know about the program and how you can defend yourself against any damage to your credit report.
The coronavirus relief law federal loan benefits make it clear that any eligible borrower benefiting from the suspension of payment will not be subject to adverse credit reports.
If you were in good standing with your federal loans before the forbearance was granted, you would remain in good standing for its duration. In fact, your credit report should count the one-time COVID-19-inspired forbearance as actively making monthly payments (unlike a adjournment or abstention) – so if anything, your credit score should go up.
It should be the same for some private student loans eligible for non-federal relief. Some states, including New York, have made deals with private lenders to grant a three-month forbearance that would not negatively affect credit (but, unlike the federal stay, would allow interest to accrue). Many banks, credit unions, and online companies themselves have also offered similar forbearance programs directly.
Now, however, it is evident that not all credit reports and scores have remained the same, although this appears to be a mistake.
The Department of Education officially announced on May 19 that it was working with the Consumer Financial Protection Bureau to correct any errors. However, on May 20, 2020, consumer advocates a class action against a federal loan officer and the three major credit bureaus for their part in the mess.
In the meantime, many borrowers could feel the effects. In fact, the Politico news site estimated that the allegedly erroneous credit information may have affected 4.8 million federal loan borrowers.
Given the unprecedented relief in federal loan payments, it is expected that there will be some implementation hiccups. Problems around eligibility for government assistance against coronaviruses have left out many federal borrowers. And in a separate issue, thousands of defaulting borrowers have reportedly seen their wages foreclosed despite the government stopping the practice during the pandemic.
So it seems like credit report issues are just the latest issue to come up, and like the rest, it can take some time to resolve.
If you’re taking advantage of the six-month interest-free break from your federal loans (or a similar private loan relief program), but are worried about the impact on your credit, you might be wondering what do then.
The first step could be as easy as expressing yourself. For example, mentions of issues involving student loan services giant Great Lakes have surfaced on social media. While the duty officer responded to some complaints directly, he also said more generally that he works with credit reporting agencies to ensure all Great Lakes account information is accurate.
While it may be a question of whether the responsibility for maintaining accurate credit reports should lie with the borrower or the service agent, sometimes you need to be careful on yourself. It’s probably wise to take the reins of your own credit report, especially if you don’t trust your loan manager to act on your behalf.
If you’re not sure if your student loan forgiveness has affected your credit, follow these steps:
Request your report via annualcreditreport.com, and litigation errors as soon as you see them. The Department of Education, among others, believes that declining credit scores were an issue with third-party monitoring services, but not with the credit bureaus themselves. Your official credit report and score may be unscathed.
Also, keep in mind that even if your administrative forbearance was reported correctly, your credit rating may have dropped recently due to other factors. Given the murky nature of credit scores, it can sometimes be difficult to identify the source of a drop.
If your report shows an error, call your service provider to ask about their reporting practices. Explain what you see specifically on your credit report: A federal loan classified as “deferred payment” would be a very likely sign that your agent has made a mistake.
Remember that you might see such a rating for your private loans, if you have any. Private lenders offering relief from coronavirus are not completely in unison in the way they report periods of forbearance related to the pandemic. Contact your bank, credit union, or online business about their practices.
You have long been entitled to one free annual credit report per year, but given the credit bureaus response to COVID-19, you can now access your reports on a weekly basis (also free of charge) until April 2022.
Also, consider monitoring your credit using a third-party service, such as My loan tree, to ensure that all errors are corrected quickly and do not reappear on the road.
If your credit has been compromised due to administrative forbearance and your service agent has been less than helpful, consider seeking a loan repayment advice elsewhere.