The year 2020 will go down in history as one of the most challenging years of our times, mainly due to the coronavirus which has had a strong social and economic impact on people’s lives.
The U.S government approved the Coronavirus Aid, Relief and Economic Security (CARES) Act and signed it into law in March 2020 in response to the pandemic-induced economic constraints. The Act outlines relief measures to assist those that have been hard hit by the coronavirus pandemic. Credit reporting is one of the areas addressed by the CARES act.
How the CARES act will affect credit reporting
The CARES act features some changes to offer temporary protection to cardholders. The Fair Credit Reporting Act (FCRA) provides guidelines on how creditors and credit reporting agencies conduct business, especially with regards to consumer rights.
The CARES Act requires lenders and credit card issuers have to offer unique payment arrangements to cardholders that have been going through a rough time due to the pandemic. Federally guaranteed mortgages and student loans. The Act does not offer lenders any directed protections, and so they are required to provide the adjustments voluntarily.
The Act defines the adjustments as accommodations that offer loan modification, reduce payments and forebear payments or any other assistance to those affected by the pandemic. Note that any accommodations designed to protect cardholders as part of the CARES Act guidelines will be temporary. They will last 120 days after the end of the national emergency declaration.
Despite the CARES Act guidelines, borrowers still have to do everything it takes to protect their credit scores and credit reports which will not be covered by the Act. Cardholders can avoid messing up their credit rating by applying for hardship accommodation, after which lenders will deem the cardholder’s account to be current or up to date.
The critical point that cardholders should keep in mind is that the processes required to ensure they tap fully into the CARES Act are not automatic. They still have to take some steps that will protect their account, such as calling the lender to discuss loan repayment modifications. Cardholders will thus have to take a hands-on approach to avoid getting into trouble.