Credit Reporting in the U.S. During the COVID-19 Pandemic
Information for lenders, data furnishers, and policy makers.
Updated June 16, 2020
We at FICO recognize the significant challenges faced by lenders in these extraordinary times. As the Coronavirus (COVID-19) pandemic continues to impact borrowers and lenders across the country, we want to make sure that data furnishers are aware of the various reporting options open to them, as well as how those reporting options can impact consumers’ FICO® Scores.
KEY PRINCIPLES IN THE USE OF CREDIT BUREAU DATA BY FICO® SCORES
There are several guiding principles that FICO uses when evaluating how to incorporate credit bureau data fields and field values into our scores:
• Ensure that any treatment is empirically supported. We assess whether the given approach under consideration is supported by the data: does it improve the effectiveness of the model at rank ordering borrower creditworthiness?
• Accept data furnished at face value. Data furnishers are in a much better position than we are to understand a given consumer’s situation and to report in the manner that most appropriately reflects that situation. At FICO, we do not feel we are in a position to second guess or override the data that has been furnished to the credit reporting agencies (CRAs).
• Drive stable, intuitive score dynamics over time. When evaluating multiple approaches, we give preference to those that tend to result in more stable and intuitive score movement for consumers over time.
CARES ACT REPORTING AND THE IMPACT ON FICO® SCORES
The CARES Act governs how furnishers must report to the CRAs only in circumstances where they have reached an accommodation with the borrower. In those cases, furnishers must continue to report the account status as “current,” provided the account was not already in a delinquent status. This reporting approach-- placing borrowers in a temporary deferred payment plan or in forbearance, along with reporting an account status as “current”-- will permanently ensure that a borrower’s FICO® Score will not be impacted by late payments related to the effects of the COVID-19 pandemic.
None of the common CARES Act-related reporting scenarios listed below will affect a consumer’s FICO® Score.
Reporting that will not affect FICO® Scores:
• Account reported as “in forbearance” (i.e., special comment code CP)
• Account reported as “deferred” (i.e. terms frequency = ‘D’ or special comment code BT)
• Account reported as “affected by natural or declared disaster” (i.e., special comment code AW)
• Account reported with Scheduled Monthly Payment Amount = $0 or missing
EFFECT OF SPECIAL COMMENT CODE “AW” ON FICO® SCORES
In instances where a borrower accommodation has not been granted (and therefore the data furnishing provisions of the CARES Act do not apply), the Consumer Data Industry Association (CDIA) provides guidelines that include reporting options available to furnishers for borrowers impacted by a disaster. A reporting option cited by the CDIA is to report special comment code AW (“affected by natural or declared disaster”). CDIA guidelines indicate that this code can either be reported along with an account in deferred status, or with “the Account Status that applies to the account (credit grantor’s decision)”.
As noted above, the reporting of special comment code AW alone will not affect a consumer’s FICO® Score. There are two reasons for this approach to special comment code AW:
1. Because there is no way to determine when a special comment code has been added to the consumer’s credit file, any special treatment based on code AW would have to be applied to the entirety of the account’s payment history, and not just to the payment history captured during the period that the consumer was impacted by a disaster
2. Once the period of disaster ends and a furnisher ceases reporting code AW, it will no longer be possible to identify whether any reported missed payments on that account occurred while the consumer was impacted by a disaster.
OTHER, LESS COMMON REPORTING SCENARIOS AND THEIR IMPACT ON FICO® SCORES
Though none of the following codes are specifically mentioned in CDIA reporting guidelines pertaining to borrowers affected by COVID-19, we also want to clarify the FICO® Score’s treatment of the following scenarios:
• Reporting an account as “loan modified” (i.e. special comment code CN or CO) alone will not affect FICO® Scores
• Reporting an account as “paying under a partial payment agreement” (i.e. special comment code AC) could have a negative impact on the accountholder’s FICO® Score. This treatment is empirically supported and based on the historical use of this code by furnishers in the scenario where a consumer is in an agreed-upon repayment plan where the payments are for less than the amount specified in the original contract. Any impact to score will remain for the duration of time that the furnisher continues to report special comment code AC on the account.
SUMMARY
To summarize:
Reporting that will not have a negative impact on FICO® Scores:
• Account reported as “current” (i.e., account status = 11)
• Account reported as “in forbearance” (i.e., special comment code CP)
• Account reported as “deferred” (i.e. terms frequency = ‘D’ or special comment code BT)
• Account reported as “affected by natural or declared disaster” (i.e., special comment code AW)
• Account reported with Scheduled Monthly Payment Amount = $0 or missing
• Account reported as “loan modified” (i.e. special comment code CN or CO)
Reporting that could have a negative impact on FICO® Scores:
• Account reported as “paying under a partial payment agreement” (i.e. special comment code AC)
• Account reported with Account Status that is worse (e.g., more seriously delinquent) than what was reported prior to the disaster.
• Account reported with substantially higher balance or amount past due than what was reported prior to the disaster
As lenders assess how their customers have been impacted by the COVID-19 pandemic, and how to report all key credit data fields in a manner that best reflects each customer's situation, using special comment codes alone should not be viewed as providing consumers relief with respect to the FICO® Score. As they are reported to the CRAs, payment status, amounts past due (if any), and balance information will continue to be important and considered in the calculation of the FICO® Score. Placing borrowers in a temporary deferred payment plan or in forbearance, along with reporting an account status as "current" instead of as "delinquent", will permanently ensure that a borrower's FICO® Score won't be impacted by late payments related to the effects of the COVID-19 pandemic.
If you have any questions about this or other FICO® Score topics, please contact us at: ScoreSupport@fico.com.