As the ripple effects of the COVID-19 pandemic continue to spread throughout the economy, many lenders are offering loan forbearance or deferred payment agreements to impacted consumers.
Lenders have introduced or expanded options for entering into these payment programs, through which consumers are granted temporary relief from making payments on loans ranging from student loans to mortgages to credit cards. FICO has been working closely with lenders to provide information on how our scoring models weigh the credit reporting codes associated with forbearance and deferral agreements, as well as free educational resources for consumers to enable them protect their credit and financial health.
Many forbearance and deferral programs are meant to provide assistance to consumers who have seen sudden disruptions to their income as a result of COVID-19 and protect those who have been impacted financially by the pandemic from suffering immediate, short-term harm to their credit. However, some consumers have reported seeing non-FICO credit scores drop after entering into one of these agreements.
With that in mind, here are a few things to know about the impact that entering into a loan forbearance or deferral agreement can have on your credit.
1. The FICO® Score Doesn’t Negatively Consider Forbearance/Deferment Agreements
Every FICO® Score model is specifically designed to ensure that consumers won’t see their score negatively impacted by credit reporting codes related to entering into these agreements. In fact, if a consumer is reported as being in forbearance or deferment, along with an account status of “current” instead of “delinquent,” that will permanently ensure that their FICO® Score won't be impacted by any of these late payments related to the effects of the COVID-19 pandemic. This approach is supported by data and ensures that consumers are treated fairly while maintaining the predictive integrity of the score. Since the pandemic first hit, we have been working closely with lenders on the appropriate use of these coding practices.
Even though these agreements should not be impacting your FICO® Score, it’s still important to regularly monitor your FICO® Score and credit report, especially during turbulent economic times. If you believe one or more of your accounts has been improperly reported, you should contact the lender who reported this information and file a dispute with the credit bureau(s).
2. Impacts to Other Credit Scoring Models will not Impact Consumers’ FICO® Scores
Even if other credit scoring models include treatment of the credit reporting codes related to loan forbearance or deferred payment plans that result in lower scores, rest assured that these score drops have no bearing on your FICO® Score. Additionally, the FICO® Score is the industry standard in credit scoring, used in over 90 percent of U.S. lending decisions (Mercator Advisory Group Analyst Report 2018). In fact, even though consumers may also have access to other credit scoring models, such as through personal finance sites, most lenders use the FICO® Score when making a decision on credit applications.
3. FICO’s Open Access Program Helps Consumers Access their FICO® Scores
FICO has always been committed to providing consumers with resources and tools to help support financial education. During this time, it is more important than ever that consumers know where to go to access their FICO® Score and understand how credit scores impact their overall credit health.
Through the FICO® Score Open Access program, launched in 2013, FICO works with over 200 leading financial institutions nationwide to give consumers free access to the FICO® Scores they use to manage credit accounts, thus creating more transparency between consumers and lenders by sharing the scoring model used in most credit decisions.
In addition to their FICO® Score, Open Access also provides consumers with the top two reason codes that are impacting their score, offering consumers further insight into their credit (for instance by highlighting the impacts of their credit utilization or overdue payments) and put themselves on the path to stay on top of their financial future.
To find out which lenders participate in Open Access, visit ficoscore.com/where-to-get-fico-scores.
For additional resources on protecting your credit during COVID-19, visit ficoscore.com/coronavirus.