The views in this article are broad in nature and it’s likely each person’s situation will differ during our current environment. Reminder: SoFi is not a credit repair company.
An unexpected layoff or a job loss could make keeping up with debt payments more challenging. An estimated 22 million Americans filed for unemployment through mid-April alone as the COVID-19 pandemic forced businesses across the country to close their doors.
When your budget is stretched thin, having the option to pause payments on credit cards, car loans, or other debts may be appealing.
Taking a break from financial obligations temporarily can offer some financial breathing room, but it’s important to understand how deferred payments may affect your credit score.
Which Payments Can Be Paused?
With COVID-19 affecting so many Americans financially, the government has introduced measures (which we’ll get to in a moment) to provide some relief from certain debt payments.
In addition, many lenders, credit card issuers, and utility service providers have also taken the initiative to offer programs allowing customers to pause payments.
Depending on each individual situation, U.S. residents may be able to get relief (federal or otherwise) from paying these expenses temporarily:
• Federal student loans
• Private student loans
• Credit cards
• Utility services, including water, electric, and gas
• Car loans
• Personal loans
It’s also possible to voluntarily pause or cancel smaller payments or expenses, such as unnecessary subscription services, memberships, and other recurring costs.
The more a person can streamline their monthly budget, the easier it may be to manage expenses.
Federal Programs That Allow Deferred Payments
For those who own or rent homes or have student loan debt, there are three federal relief options that may be available to defer payments.
COVID-19 Mortgage Forbearance
First, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows eligible homeowners to pause making mortgage payments for up to 180 days. An additional 180-day extension can be requested if homeowners need to pause payments a little longer.
This relief applies to eligible homeowners who have federally backed mortgages, including:
• Loans owned by Fannie Mae and Freddie Mac
• FHA loans
• VA loans
• USDA loans
During the 180-day period, eligible homeowners can’t be charged any fees, penalties, or additional interest (on top of what’s already scheduled for payment), and late payments can’t be reported to the credit bureaus.
It’s important to note that this is a mortgage forbearance program, not mortgage forgiveness. That means payments that are missed will need to be made up.
Depending on the lender, loan terms may be modified, the missed payments could be added onto the end of the home loan, or a lump sum payment may be required.
Deferred Payments for Federal Student Loans
The CARES Act also extends a forbearance period automatically for eligible federal student loan borrowers . Previously, qualified students could defer student loan payments through deferment or forbearance due to hardship or other factors, but there are some changes due to the CARES Act.
Now, those with an eligible federal student loan can pause student loan payments through Sept. 30, 2020. The interest rate for federal student loans is set to 0% during this time, and any payments made would be applied only to loan principal.
Deferred payments still count toward required payments for Public Service Loan Forgiveness (PSLF) for those still employed full time, regardless of whether they pay anything toward their loans. Since payments are being suspended automatically, credit score won’t be affected.
Note that once the automatic forbearance ends, payments would become due again. Borrowers would need to reach out to their lenders if they wish to continue forbearance or take a deferment instead.
As of this writing, borrowers who stop paying their student loans altogether after the forbearance period is over could end up in default once payments are 270 days late.
Federal Relief for Renters
If a U.S. resident is renting a home versus owning one, they may be able to temporarily stop making rent payments without risking eviction.
The CARES Act halts evictions for eligible renters for 120 days from March 27, 2020. This protection extends to renters living in single-family and multi-family properties (those with between one and four units) that were financed with federally backed mortgages.
Federally backed mortgages are those backed by Housing and Urban Development (HUD), Veterans Affairs (VA), U.S. Department of Agriculture (USDA), or Fannie Mae or Freddie Mac.
If a landlord reports rent payments to the credit bureaus, this moratorium could help protect a tenant’s credit score if they’re unable to pay.
However, rent that hasn’t been paid won’t necessarily be forgiven, and unpaid rent during this time will likely come due after the 120 days.
Deferring Payments Outside of Federal Relief
Federal forbearance programs can help provide a break from certain payments, but they don’t offer blanket coverage to everyone. For those negotiating deferred payments outside of these programs, it’s important to keep one’s credit score in sight.
Pausing Mortgage and Rent Payments
If a mortgage or rental property isn’t covered by the CARES Act, borrowers could still reach out to their lender to discuss what options, if any, may be available for putting payments on hold.
Those options might include:
• Loan modification
• Mortgage refinancing
Modifying a loan or requesting a forbearance could help protect a credit score if the borrower hasn’t fallen behind on the payments. But any late or missed mortgage payments would still be included on their credit report.
On the renting side, the CARES Act also prohibits adverse credit reporting temporarily for rent in cases where the landlord has agreed to a forbearance, as long as payments weren’t already delinquent.
But if a tenant and their landlord don’t have an agreement in place and the tenant isn’t covered by federal forbearance, it’s possible that late or missed rent payments could be reported to the credit bureaus.
Deferring Payments on Private Student Loans
Private student loans aren’t covered by the CARES Act. It’s up to individual lenders to decide what options, if any, they’ll offer to allow borrowers to ease payment burdens during this time.
That might include:
• Student loan refinancing
SoFi offers Unemployment Protection, which provides up to 12 months of forbearance in three-month increments for eligible borrowers who lose their job through no fault of their own.
Similar to a traditional student loan forbearance for federal student loans, private student loan forbearance wouldn’t affect the borrower’s credit score. Not all lenders offer forbearance on private student loans, so a borrower would need to check with their loan servicer.
For those with SoFi private student loans or refinance who are experiencing hardship due to COVID-19, SoFi is offering payment deferral for those who are qualified. Click here to learn more.
If a private student loan lender doesn’t offer forbearance as an option, the borrower may want to look into refinancing their private student loans. SoFi can work with private student loan borrowers to come up with possible options.
Student loan refinancing allows borrowers to pay off an existing loan with a new loan, ideally at a more competitive interest rate. Refinancing could also help to lower monthly payments, making loans more manageable for a specific budget.
However, since the CARES Act has suspended all payments for federal student loans, and made all interest on them 0% through Sept. 30, it might be a good idea to wait out that period before making any decisions on the refinancing or forbearance.
Putting Utility Payments on Hold
If someone is unable to pay their electric, water, or other utility bills, they may be able to work with their service providers to defer those payments.
Many utility companies are suspending disconnects during COVID-19 and allowing customers to make those payments up at a later date.
Generally, utility service payments (or non-payments) aren’t reported to a person’s credit unless their account is sold to a debt collector after default.
However, just because utilities won’t be disconnected doesn’t mean it’s a good idea to miss payments—it might be a good idea to work out a payment plan with the utility company.
Deferring Credit Card Payments and Other Loans
For those with credit cards, car loans, or personal loans, making sure to stay on top of those payments can be critical to a credit score. Remember, payment history accounts for 35% of a FICO® Score .
Pausing Credit Card Payments
Worried about falling behind on credit card payments? Credit card companies may be able to help.
Many credit card issuers offer hardship programs for customers who are having trouble making payments. Depending on the terms of the card issuer’s program, cardholders may be able to:
• Reduce the card’s annual percentage rate (APR) temporarily
• Reduce the minimum monthly payment due
• Waive late fees and other penalties
• Pause payments temporarily
Cardholders could call their credit card company to find out what hardship options might be available. When negotiating deferred payments for credit cards or any other type of debt, they might want to be prepared to explain why they can’t pay and the nature of their hardship.
If the cardholder is able to get enrolled in a hardship program, they might want to be sure to understand the terms. If they’re expected to make a payment, for example, even if it’s a nominal one, it’s still important to pay on time to avoid a negative mark on their credit history.
Pausing Loan Payments
If a borrower owes money on a car loan or personal loan, they could reach out to their lenders to see whether a forbearance is possible.
For instance, a car loan lender might offer a skip-a-payment program. Instead of making a regular payment, they might let a borrower skip it and have it added on to the end of their loan term.
Personal loan lenders may offer similar options or allow borrowers to reduce their monthly loan payments temporarily. For example, SoFi offers payment deferral options on personal loans for those who qualify.
Staying on Top of Credit Scores During a Crisis
Credit scores are an important part of financial life, and preserving it during a crisis like the COVID-19 outbreak may be a top priority. Using deferment and forbearance periods to pause payments could help protect a credit score.
However, bear in mind that while a credit score itself may not change, a forbearance can still appear on a credit report and could affect future lending decisions.
On April 20, the three main credit reporting agencies, Equifax, Experian, and TransUnion, announced that they will be providing weekly free credit reports until April 2021.
In a joint statement , the CEOs of all three companies stated their intentions. “To help play our part and reduce some of that anxiety, we are uniting as an industry to help people know the facts about their financial data.”
The credit agencies also added that staying vigilant with credit is of great importance during this time of uncertainty. A resource like SoFi Relay could help monitor credit on a daily basis.
This tool allows users to track weekly changes to their credit so they can see what’s helping or potentially hurting their score. The tool is complementary and won’t hurt their credit score—no matter how many times they’re checking on their credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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