Your physical health isn’t the only thing coronavirus (COVID-19) threatens. It also has the potential of impacting your financial well-being. Maybe it has already. Hundreds of thousands find themselves laid off, furloughed or just plain out of a job because of business slowdowns and shutdowns due to COVID-19.
If you are among those whose income has been reduced or terminated by efforts to slow the spread of the virus, right now is the time to take action to protect your credit rating and credit score. You don’t want to come out the other side of this crisis labeled by lenders as a high credit risk. You want to protect your power to borrow.
Not immune to disruptions by the COVID-19 scare, automotive and its related industries are feeling the pain as well. In fact, virtually everything related to the auto industry has been turned on its head. However, one thing remains constant: The car payment will still come due each and every month. How do you protect your credit health during the Coronavirus?
Why Is Protecting My Credit Score During the Coronavirus Important?
Your credit score is a precious commodity to be safeguarded even in the face of the COVID-19. It’s a snapshot of your current credit health, really, and it’s a one-stop indicator of your credit worthiness. For lenders, it puts a number on the level of risk you represent as a borrower.
A higher score (670 and above) represents less risk, while a lower score (579 and below) indicates a large risk. A score between 579 and 670 is considered "fair" by Experian, one of the three national credit-monitoring bureaus, alongside TransUnion and Equafax.
Will Missing a Car Payment Affect My Score?
Yes, missing a car payment will impact your credit score. Again, from the experts at Experian, the number one factor affecting your credit is your payment history. That is, do you make your monthly payments on time? There are other factors impacting scores, but payment history is at the top of the list. A good option for staying current or getting current on your car payment is to use the stimulus check that’s going out to most Americans.
Every lender treats past-due payments differently. There may be a short grace period in which, if the payment is received, the lender won’t record it as late. Once you’ve exceeded any stated grace period, though, the lender will likely report it as delinquent. The three credit bureaus keep track of borrowers who are 30 days, 60 days, 90 days or more delinquent. You want to avoid falling into any of those columns. It will lower your score, sometimes by a lot.
How Do I Protect My Score If I Can’t Afford My Car Payment?
Unless your car loan is with a buy-here-pay-here car dealer, you can probably work out a short-term solution with your lender if you can’t afford your car payment. Even before the COVID-19 pandemic, many banks, credit unions and automaker (OEM) captive lending institutions, such as Ford Motor Credit and Toyota Financial Services, had some sort of one-time payment-forgiveness provision in place that allowed qualified borrowers to defer one month’s payment until the end of the loan. Such accommodation could be made during a temporary hardship or sometimes even during the budget-stretching holiday season.
Because of the effects of the COVID-19 pandemic, most banks, credit unions and captive lenders have announced programs to help borrowers get through the next few weeks and months. Most of these programs are on a case-by-case basis, but they might include deferring payments, waving interest payments, restructuring a loan, returning your lease, resetting due dates and so forth.
Will Making Payment Arrangements with My Creditor Lower My Score?
Generally, no. It is a question you should ask before taking advantage of any special missed-payment solutions offered by your lender, but by and large, most banks, credit unions and captive lenders won’t punish you for taking advantage of whatever programs they offer during the COVID-19 scare. They recognize it’s within their best interest to work with you to keep your payments current and you in your car. Any formal agreement you make with them will act as a reset. Experian and the other credit bureaus only have the information reported to them by lenders. As long as you keep up your end of the bargain going forward, your credit rating and score shouldn’t suffer.
If you find that you can’t afford to make an upcoming car payment, reach out to your lender immediately. If the lender has a solution in place, the best time to make arrangements is before that payment is due.
Looking for more info relating to you, your next vehicle, and the COVID-19 pandemic? Check out more of Autotrader’s Coronavirus content.