More Canadians are struggling to pay their bills due to COVID-19. Whether it’s credit card, car loan, mortgage, or phone bill payments — the recent wave of layoffs means many will need to miss or defer payments. Luckily, creditors are offering flexible payment options to customers financially impacted by the pandemic.
Even the credit bureaus are willing to play ball. Both Equifax and TransUnion say they’re working with lenders to help minimize any negative impact from COVID-19. Under normal circumstances, a credit reporting agency calculates credit scores using complex algorithms and statistics partially based on information provided by banks or lenders.
Lenders look at your credit score and your credit report to see how reliable you are as a borrower and to decide whether or not you qualify for their products. Nowadays, even employers and landlords can ask for your credit report to determine whether you’re trustworthy or not.
Part of that assessment is done based on whether you have any missed or late payments. Depending on circumstances, these can show up on your credit report. That’s why we encourage people to make at least the minimum payment on accounts to avoid late fees and an overall bad credit score.
Naturally, many are wondering if COVID-19 deferrals will impact your score. Read on to find out.
How does COVID-19 impact my credit?
Right now, it’s up to individual lenders to report to credit bureaus whether a borrower has missed payments. So far, lenders like the big banks have said that they will work with borrowers who need and qualify for deferrals to make sure it doesn’t affect credit scores. Either way, when doing a deferral, make sure you clearly ask the bank whether it will impact your score and ask that they add a note to your account about what was discussed and agreed to.
However, it’s important to know that the credit bureaus and lenders are not committing to guarentees that there will be no credit score impact when you defer. While right now deferrals may not impact your credit score, future deferral requests or missed payments might.
TransUnion told LowestRates.ca in an email that they’ve “provided guidance to lenders on how to report deferrals.”
“While many factors influence a single score, our analysis indicates that participation in deferral programs will neutralize the impact on TransUnion scores,” the statement said.
When we asked for clarification on the impact on the score TransUnion had no further comment.
Canada’s other credit bureau, Equifax, was less firm on the credit score.
“The effects of coronavirus on the Canadian credit ecosystem continue to evolve so there isn't a solid answer yet,” Equifax told us in an email.
“We understand that people are concerned about how deferred payments and other special arrangements may affect credit scores. The specific details continue to evolve and we will share more information as the plans are finalized.”
Should you contact credit bureaus about deferring payments due to COVID-19?
One of the ways to minimize the effect of deferred payments on your score is to add a 400 word or less explanation to your credit report known as a consumer statement.
For example, “Be advised that the negative accounts on my credit report are related to the coronavirus. I intend to make these up as soon as I can,” Equifax shows on its website.
If you add a statement to your credit report, every time your file is accessed, your statement will be included. So you'll always have to explain it to a financial institution or an underwriter when you apply for credit.
Unfortunately, as we can see by Equifax and TransUnion’s reports, this is no guarantee that you won’t suffer a negative credit effect as a result of deferred payments.
What we can recommend is to monitor your credit report in the months ahead and call and ask questions about anything that doesn’t seem right. You can always call the credit agencies to challenge or ask questions about anything on your file. If you see anything that doesn’t look correct on your credit report, contact credit bureaus immediately.