|Welcome PrivacyArmor members! Beginning in 2021, PrivacyArmor will be known as Allstate Identity Protection. In the meantime, we’ll continue to provide you with tools and education designed to help protect your identity and privacy. Stay tuned for more details.|
More than 40 million Americans have filed for unemployment during the COVID-19 crisis. If you’re one of them, you’re probably facing some tough hurdles — like how to find work in the midst of a global pandemic.
If your income no longer covers your monthly expenses, you may also be concerned about your credit. But did you know there are steps you can take to protect your score, even when it’s not possible to pay all of your bills on time?
Read on to learn more about how credit scores are composed, plus our tips for keeping yours as healthy as possible during a period of unemployment.
How do late payments affect your credit?
Different credit-scoring systems use different models to calculate creditworthiness — which is why your VantageScore and FICO score may not match.
Because FICO scores are the most widely used, it’s worth noting that the FICO scoring model incorporates data from these five categories, with each item weighted differently:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Notice that payment history data — your personal track record of paying bills on time — is given the most weight, which is why just one overdue bill can drop a healthy score up to 100 points. If your score is already weak, a late payment won’t be quite as catastrophic, but it will still dent your credit.
Good credit is important — but in these unprecedented times, some late payments may be unavoidable. If that’s true in your case, try not to stress. Instead, focus your energies on strategic planning and communications that may help minimize the damage.
How should you prioritize payments?
If you’re facing financial hardship, assessing and prioritizing your debts is a good first step towards recovery.
Most financial experts advise paying secured debts first. Secured debts are tied to a specific asset, such as a house or car, so defaulting on payments can lead to tangible consequences. If you don’t pay your mortgage, for example, you could lose your home.
In the case of unsecured debts, such as credit-card debts and medical debts, the lender doesn’t have tangible collateral. If you don’t pay, you’ll likely be reported to the three credit bureaus, and your credit score will drop. The lender may also enlist a debt-collection agency to seek payments from you, or even eventually take you to court in hopes of settling the debt.
When deciding which debts to prioritize, interest rates are another factor to consider. If one of your loans has a particularly high interest rate, it may make more financial sense over time to pay down that debt first.
If you’re only slightly behind on bills, pay careful attention to the timing of any tardy payments. Typically, a late payment won’t be reported to the credit bureaus until it’s 30 days past due. With that in mind, you may be able to schedule some narrowly delayed payments in a way that minimizes the damage.
What relief is available?
If you can pay your bills, you should continue to do so. But with many millions out of work, congress recently passed the Coronavirus Aid, Relief, and Economic Security act. The law, known as the CARES act, provides some relief for pandemic-impacted borrowers who are unable to make ends meet. Here are a few of the highlights:
- Under CARES, federal student loan payments are postponed through September 30.
- The law also offers options for mortgage relief. If you’re experiencing financial difficulties due to the coronavirus and your mortgage is backed by the federal government, you have the right to request forbearance, an agreement that allows you to pause or reduce payments. Under CARES, the forbearance period is 180 days, with the option to request an 180-day extension.
The goal here is to give Americans some breathing room during a difficult time, but your debt won’t be erased. After the forbearance period ends, the debt still must be paid in full — sometimes with added interest and fees — to keep your account in good standing.
As a result, many borrowers face a large bill at the end of the grace period. Some lenders require a lump-sum repayment, but it can be difficult to produce a large amount of cash on the heels of a financial hardship. If you’re considering forbearance, consider contacting your lender first to ask about repayment options. Short-term payment plans or extended loan modifications may be more forgiving if they are available to you.
- If you’re a renter, the CARES act or another state or local ban on evictions may provide you with protection until you’re back on your feet.
Most Americans have additional debts, such as auto loans or credit cards. Some banks and organizations are waiving fees or temporarily deferring payments during the health crisis. If you’re struggling to pay a bill, reach out to your lender right away to explain your hardship and discuss any available repayment options.
Keeping track of your credit and your identity
In these uncertain times, keeping track of your credit and identity is more important than ever. The IRS warns of coronavirus-themed schemes targeting stimulus checks and unemployment benefits, while industry watchdogs are noting a spike in traditional identity theft.
If you’re unemployed and struggling to preserve your credit, it’s particularly devastating when a criminal steals your credentials and sinks your score. This is one of the reasons we give furloughed and unemployed employees the option of retaining their identity protection benefit.
Here are just a few of the other ways we protect our members:
- Our credit-monitoring and dark-web monitoring tools help you identify threats to your credit profile, data, and identity. Visit the portal today to enable credit monitoring, and add important items, like credit card numbers, to our Dark Web Monitoring tool. Then, we can alert you if we detect your data where it doesn’t belong.
- If you’re experiencing fraud, our fraud remediation experts are available 24/7 to manage your recovery and help fully restore your identity.
- We can also reimburse stolen funds, as well as many of the out-of-pocket expenses caused by identity theft.
These are difficult times, but we hope you’ll breathe a little easier knowing we’ve got your back for the next chapter and beyond.