January 23, 2019
If you’re a furloughed government employee or other worker sidelined by the shutdown – or worse, working without a paycheck – you’re probably at risk of missing payments or racking up large credit card bills. How do you keep your credit score from dropping as a result?
On-time payments are one of the most influential factors in your credit score, so let’s start there.
Hopefully, you have an emergency fund to cover short-term payments. If not, your shutdown goal is to minimize negative reports to the three major credit reporting agencies (Experian, Equifax and TransUnion). Credit scoring systems don’t have any mechanism to make exceptions with missed payments, but lenders have some leeway in how missed payments related to the shutdown are reported.
Avoid all delinquencies, even if you have to run larger credit balances to do so. If delinquency appears inevitable, contact all of your creditors in advance to assess your options. Prioritize your bills based on available assistance and the consequences of missing each payment.
Mortgage payments take priority. They are probably your largest payment with the shortest grace period for late payments (15 days is typical) and the highest consequences for missing payments. You’ll generally accrue a late fee after missing the grace period. If you can’t pay within 30 days, your missed payment will be reported to the reporting agencies. At 120 days delinquent, your lender may decide to foreclose.
Contact your mortgage servicer well before you miss a payment to explain the situation. They may allow a forbearance that suspends or lowers your payments during the shutdown. If not, try negotiating to get any relief you can, such as late fee waivers.
Is your payment already reported as late? You can try contacting the credit reporting agency and explaining the situation. They may ask the lender for clarification, and the lender could grant a “goodwill” deletion of a late payment – but it’s best to start your conversations with the lender.
Student loans are an exception in that late payments must be reported. It’s even more important to be proactive with student loans to find forbearance or relief programs. Contact your student loan servicer immediately.
How about medical bills, auto loans, or personal loans? Again, negotiation is the key. Aim for payment extensions and/or reductions before your payments become late and reportable.
Credit cards generally have a low minimum payment to help avoid delinquency – but if you simply can’t pay, call your card issuer and ask for a hardship program that lowers your minimum payment further or temporarily extends your grace period.
Are your credit card balances nearing your limits? This will increase your credit utilization, but it may be necessary in the short term. Try to stick with existing accounts and avoid opening new credit card accounts, as your credit score will suffer, and your offers are likely to be unfavorable.
Once the shutdown ends, focus on paying off high-interest credit card debt and any outstanding loan balances while peeling off a small monthly amount to an emergency fund. Consider a balance transfer card with a 0% APR introductory offer to consolidate your debts. You can pay down your balance without accruing extra interest charges – making it less tempting to divert emergency funds. Check out our list of 0% APR credit cards.
The American Bankers Association (ABA) has compiled links to shutdown assistance resources at various banks across the nation, such as short-term interest-free loans. If your bank isn’t listed, contact them directly for further information.
Be proactive and take charge. If there’s anything the shutdown shows us, it’s that you can’t rely on the government for financial help.
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