COVID + Credit: Deferred Payments and Your Credit Report
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As the Coronavirus/Covid-19 pandemic continues to place a stranglehold on the global economy, millions of Canadians are confronting unexpected financial challenges for the first time in their lives and finding they may not be able to pay all of their bills.
Lenders and creditors have offered a variety of solutions for borrowers who have lost their jobs or experienced pay cuts during the Covid-19 pandemic. One of these options, known as deferred payments, involves an agreement reached between a borrower and a lender or creditor that allows the borrower to pause or suspend payments that would have otherwise been required.
What are deferred payments?
Due to the extreme and sudden economic impact of the Covid-19 pandemic, many creditors and lenders are offering a variety of special payment arrangements on a number of different types of debt, including student loans, credit card debt, automobile loans, personal loans, lines of credit, mortgages, utilities, property taxes and small business loans. Lenders and creditors may agree to a reduced or delayed payment arrangement for up to 12 months, or they may offer to reduce the interest rate being charged on what you owe, but there are no government-mandated rules requiring lenders or creditors to agree to deferment programs.
Call your lenders or creditors for specific deferred payment program information
Lenders and creditors have developed their own deferred payment programs and rules by which a borrower may be approved. You should check with your lender or creditor for more information on the special payment arrangements available to you and to set up a deferred payment plan.
Don’t just skip a payment and expect things to be okay. You will need to work out a special payment arrangement with your lender before you start delaying payments that are due or you could jeopardize your credit standing.
Importantly, deferred payments aren’t a gift; if you enter into a deferred payment program you’re not getting “free money.” Although the repayment plan you work out with your lender or creditor may include a waiver of late fees, you could be required to repay interest that accrues during the approved deferral period. Ask your lender or creditor whether late payment fees will be charged and how the special payment arrangement will be reported to the national credit bureaus.
Choosing to defer a payment may give you time to address your short-term cash flow challenges and buy some time to get back on your feet financially without jeopardizing your credit rating or credit scores. However, it’s important to weigh all of your options and discuss your situation with your lender or creditor before deciding to proceed with deferred payments.
How do deferred payments impact my credit rating and credit scores?
When you look at your credit reports, each of your credit accounts is assigned a rating by your lender or creditor based on how timely you’ve repaid the credit that has been extended.
These ratings are a combination of a letter and number. The letter indicates the type of account – “R” for revolving, “M” for mortgage, “I” for installment and so on. The number component is coded on a 1-9 scale, where 1 means you’ve paid what you owe as agreed and higher numbers indicate an increasing degree of deficiency. For example, an R9 rating could indicate that a revolving debt has been placed for collection or that a bankruptcy has been recorded.
In other words, the lower the number part of the rating, the more favorable the information on your credit report. Learn more about your credit reports in the Credit Reports Education section of our education hub. Prior to the Covid-19 pandemic, if you had missed a payment on a credit card, that account might be assigned a rating of R2 on your credit report. Today, if you and your credit card issuer agree to a special payment arrangement, the account will be assigned an R1 rating, which means you’re repaying your debt “as agreed.” The R1 value will stay on the account as long as the deferred payment arrangement is in force.
Equifax and TransUnion have worked closely with lenders, creditors, industry regulators and the Canadian government to develop updated credit reporting specifications in response to the Coronavirus/Covid-19 pandemic. In addition to the credit account rating described above, these specifications outline a number of data elements which must be reported in a certain way to neutralize any negative impact of deferred payments on the borrower's credit standing. In other words, deferred payments should not harm the borrowers' credit scores. We are working closely with lenders to help them meet the reporting specifications.
COVID + Credit: What you can do now about deferred payments
If you find yourself struggling to make ends meet due to a layoff or income reduction, you might try to reach an agreement with your lender or creditor to defer or suspend your regular payments:
Deferred payment process: mortgages
Recent action by the Canadian government makes it easier for lenders to defer mortgage payments for up to six months for borrowers who are affected by the Covid-19 pandemic. You must still apply to receive a deferred payment program, and special payment plans are granted on a case-by-case basis. Be sure to ask about late fees and other details. Contact your lender to determine your options and see what resources are available to you.
Deferred payment process: student loans
Currently, the deferment process for your student loans depends on what type of loan you have. The federal government suspended payments for a limited time on Canada Student Loans and Canada Apprentice Loans, with no interest accruing as of March 30, 2020. Many provinces and territories have followed suit; however, you should contact your student loan servicer for more information on the specific suspension period and/or deferral options available to you.
Deferred payment process: auto loans
Many auto lenders are currently offering deferral plans during the pandemic, which includes options for existing customers and those who may be looking to purchase a new vehicle. The specific offer depends on the lender, so make sure to reach out directly.
Deferred payment process: credit cards
The options for credit card payment deferral depend largely on the issuer, with some allowing you to defer payments while interest continues to accrue. Others have established various qualifications to determine your eligibility for relief. Even if your credit card company isn’t offering an option that works for you today, it might in the near future, so check back with your card issuer for updates.
Deferred payment process: utilities and property taxes
Many municipalities across Canada are offering deferred payments or payment relief for customers who are financially impacted by the Covid-19 pandemic, including on utility bills and property taxes. Call your local municipality or utility provider for details.
Deferred payment process: small business loans
Business owners have many options for relief, though you may need to search for the specific area of aid most applicable to you. You can see a list of available government relief for businesses here, or answer a few questions to get a personalized list of resources for your particular business.
This guidance may change as the Covid-19 pandemic evolves, but we are committed to supporting you and providing up-to-date information as it becomes available.
COVID + Credit: What you can do now
The most important thing you can do right now is to ensure your current credit reports are accurate and reflect any deferred payment agreements you may have reached with your lenders and creditors. Remember the information about your deferred payments may not get reported to Equifax for up to 30 days. Don't expect to see updates on your credit report immediately after your discussion with your lender. Currently, you may receive a free copy of your credit reports online or by mail by visiting Equifax.ca or by following this link to start the process. If you see something that appears to be inaccurate, you can fill out a credit report update form to dispute the error.