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We at FICO recognize the significant challenges faced by lenders in these extraordinary times and we want to offer our assistance. With the recent passage of the CARES Act, we are providing information to data furnishers to clearly communicate how various credit reporting actions they take during the COVID-19 pandemic will impact U.S. consumers’ FICO® Scores.
It is important to note that the CARES Act governs how furnishers must report to the credit reporting agencies (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 prior to the accommodation. 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.
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)”.
It is important to understand the effect that reporting special comment code AW will have on the FICO® Score. Because comment codes such as AW are temporary, they are only reflected in the credit file at all three CRAs for as long as they are being furnished and do not include sufficient information to override the “credit grantor’s decision” under CDIA guidelines to submit AW codes and apply the appropriate reporting of account status as either current or delinquent. All FICO® Score versions – going back 30 years – do not second guess and override the account status determined by furnishers. This means that if a tradeline is reported as current with special comment code AW, the score will treat that account as current. Likewise, if a tradeline is reported in delinquent status with special comment code AW, the score will treat that account as delinquent. The reporting of special comment code AW alone will not affect a consumer’s FICO® Score.
We have adopted this approach to special comment codes for good reason. Because there is no way to determine when a special comment code has been added to the consumer’s credit file at all three CRAs, electing to ignore delinquencies based solely on the presence of the code would mean that ALL historical delinquencies would have to be ignored, including those that occurred prior to the disaster. For the same reason, once the period of disaster ends and a furnisher ceases reporting code AW, it will no longer be possible to identify that some of the reported missed payments on that account occurred while the consumer was impacted by a disaster. In both cases, the payment information of a tradeline would be inappropriately considered.
To summarize, only lenders are in a position to assess how their customers have been impacted by the COVID-19 pandemic, and to report all key credit data fields in a manner that best reflects each customer’s situation. The reporting of special comment code AW alone, however, should not be viewed as a way of 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.
We will continue to post updates to this web page to provide data furnishers with up to date information on this topic.
Again, we recognize that we are operating in extraordinary times and we want to offer our assistance to organizations we serve. Should you have further questions please contact us at: ScoreSupport@fico.com
We have been proactively engaging with data furnishers to convey how various credit reporting actions during the COVID-19 pandemic will impact U.S. consumers’ FICO® Scores. We previously communicated that reporting an account as deferred or in forbearance or “affected by natural or declared disaster” alone will not affect a consumer’s FICO® Score.
Recently, we have fielded several questions regarding the reporting of special comment code AC (“paying under a partial payment agreement”). While this code is not specifically mentioned in CDIA reporting guidelines pertaining to borrowers affected by COVID-19, we believe it is important to clarify that special comment code AC is considered as a derogatory indicator by the 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.
As a result, if a furnisher opts to report an account with special comment code AC, this could have a negative impact on the accountholder’s FICO® Score. Any impact to score will remain for the duration of time that the furnisher continues to report special comment code AC on the account.
Reporting that will not have a negative impact on FICO® Scores:
• Account reported as “current” (i.e., account status = 11)
• Account reported as “deferred”
• Account reported as “in forbearance” (i.e., special comment code CP)
• Account reported as “affected by natural or declared disaster” (i.e., Special comment code AW)
• Account reported as “loan modified” (i.e. special comment code CN or CO)
Reporting likely to have a negative impact on FICO® Scores:
• 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
• Account reported as “paying under a partial payment agreement” (i.e. special comment code AC)
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 noted above, use of special comment code AC will not provide relief with respect to the FICO® Score, and could inadvertently result in a negative impact to the 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.
We continue to offer our assistance to your organization. If you have any questions about this or other FICO® Score topics, please contact us at: ScoreSupport@fico.com.