The COVID-19 pandemic has created financial hardships for many consumers. As such, some credit card issuers have stepped up to help by offering payment deferrals to those impacted.
Payment deferral plans allow you to skip payments without damaging your credit score. Under normal circumstances, your credit score would suffer as soon as a payment is 30 days late or more.
- Deferment programs provide payment relief for up to three months.
- Credit bureaus will not count deferred payments against you.
- Any late payments you already have won’t become more late during deferment.
- Check your credit report to verify your issuer is reporting your payments as deferred and not late.
- Some credit-card issuers may charge you interest during the deferment period.
How Do Payments Normally Impact Credit Reports?
Each month, credit issuers report your payment activity to the three major credit bureaus: Experian, Equifax, and TransUnion.
“In normal circumstances, when you miss that first full billing cycle, it’s going to have a negative impact on your scores,” said Rod Griffin, senior director, public education and advocacy for Experian.
The late payment will show on your credit report with a notation indicating if it is 30, 60, or 90 days late. How much your late payment affects your score is hard to say exactly because it will depend on your credit history, Griffin told The Balance in a phone call.
But anytime you miss a payment and it’s reported, it's going to have a serious effect. That’s because payment history is the biggest factor used in the credit scoring calculation, accounting for 35% of your score. If your credit score takes a big hit from not paying a bill for a month or more, it could have other repercussions for you, including higher interest rates or rejected applications for loans or credit cards.
How Has COVID-19 and Credit Card Deferrals Impacted Payment Reporting?
Missed payments during the COVID-19 crisis will still have a negative effect on your credit reports, but many credit issuers are offering cardholders a chance to skip payments without negative credit consequences.
“During the pandemic, there have been new measures that have been used to help people through this time,” Griffin said.
Specifically, many credit card issuers are offering temporary payment reductions and deferrals.
A September 2020 survey by American Consumer Credit Counseling revealed that 23% of consumers received reduced payments and 40% received a payment deferment. What’s important to understand is that a payment deferral is a formal process. In other words, you can’t just decide to start skipping your payments. You have to contact your issuer online or by phone to request a deferment.
If your issuer approves you for a deferral, it means the issuer has agreed that you do not have to make payments during that period, and they will not report payment activity during that time. Therefore, “missing” payments won’t have a negative effect on your score.
If you go forward with a payment deferral, there will be a notation on your credit reports during that period, Griffin said.
“It will say this account is in deferment, but it will have a status of current. When it ends, you pick up where you left off and it will look normal in the credit history,” Griffin said.
Most of the major credit issuers have been offering some form of payment relief for their customers since the start of the coronavirus pandemic. For example, Wells Fargo encourages anyone who needs assistance to get in touch with customer service to work out the details. Those approved will have their accounts reported as “current” to the credit bureaus (assuming there wasn’t already a delinquency).
If your credit-card issuer charges you interest during deferment, your balance will grow while you don’t make payments. An increased balance uses up more of your credit limit, which could lower your credit score.
Check Your Credit Report to Confirm Your Deferment
“It’s a good idea now especially if you’re working with your lenders to check your reports more often just to confirm that things are being reported correctly,” Griffin said.
Usually, you can do so for free once per year via AnnualCreditReport.com, but all three bureaus are allowing weekly free reports through April 2021.
Credit reporting may not happen instantly. Most credit card issuers report accounts monthly, it may take several weeks for a deferral or other activity to appear.
If after three or four weeks it seems like something is reported incorrectly (a new late payment while you’re in deferral, for example), you should contact the credit card issuer to make corrections, Griffin said.
What Won’t COVID Relief Cover?
For anyone who was 30 days late or more before a payment deferral was approved, their credit report will still indicate the late payment. However, the late payment will not get worse. So, if you were 30 days late and then enter into deferment for two months, your credit report will show you being 30 days late instead of 90 when the deferment is over.
“If you can catch up on that late payment [during the deferral period], however, it will be updated and shown as current,” Griffin said.
Of course, anytime you enter into an agreement with a creditor, you want to be sure you understand the details. For example, you’ll want to know if your account is going into deferment or forbearance. With the latter, interest will continue to accrue, which may then increase your minimum payment due once you resume payments.
Other Factors to Consider
You have to be 30 days late in order for your late payment to ding your credit report. So, if you are just three days late and then you make your payment, the issuer won’t report the late payment.
Once you are late 30 days or more, that late payment will remain on your credit report for seven years, Griffin said. If your late payment becomes 180 days late, the issuer may “charge off” the account as a loss, and that delinquency will also remain for seven years. You can try to plead your case with the credit card issuer and ask them to remove the late payment if you underwent a hardship, but there’s no guarantee the issuer will agree to do that.
Even if a late payment stays on your report for the full seven years, its effect on your credit score will decrease as time goes on, Griffin said.