While Corona Virus continues to alter our lives maintaining “survival” at the top among our to-do list, we also cannot undermine the lesser ones whose impacts may surface once this pandemic effectively subsides and our lives get back to normal. The loss of money in the market due to the lockdown affecting businesses means a noticeably large percentage of consumers have less money to pay their debts.
Defaulting on payments means a blot on your credit report and a damage to your credit score. Along with your health, management of your finances could be a balancing act, but a mandatory one. So how can you save your credit score during a pandemic? Lets find out…
The 3 month RBI Moratorium on EMIs
Taking the lockdown into consideration, the RBI had announced a moratorium that got extended to a period of 3 months as lockdown entered newer versions. It includes all loans including home loan, personal loans, education loan, auto loan, working capital loan, credit card dues etc. Right now, the total moratorium duration spans from 1st March to 31st May 2020, synchronizing with the duration of lockdown. This moratorium is intended to ease the pressure on borrowers allowing them to skip paying EMIs for the time being. There is however an additional interest that gets added to your EMI that has not been paid during the moratorium period. This additional interest may either be added up to all your future EMIs or your loan tenure could get extended at the same EMI level.
So the actual relief that you get is in the form of not getting reported with the credit companies as a defaulter in your personal credit report or business credit report. Also, deferment of dues under the provision of a moratorium may not be such a good idea for credit cards as they charge a hefty interest rate which will accrue for the moratorium period.
Forbearance as another tool
In an unfortunate circumstance where the moratorium period got over but you still could not find yourself in the position of paying your dues, then you should seek forbearance from your lender. Forbearance is a provision where lenders allow borrowers up to 12 months of suspended or reduced loan payments to help them recover from a financial hardship. After this period, the borrower is expected to repay all the deferred payments either in full or in 12 installments depending upon lenders. But to qualify for forbearance, you will need to prove that you are currently under a financial hardship, which you can, using COVID-19 as a legit excuse. If you’ve entered into payment forbearance or any kind of deferment agreements with your lenders, payments that are reduced or suspended during forbearance will not be considered delinquent, and will not affect your account’s standing on your credit reports.
On the other hand, if you do make partial payments or skip them altogether even though it be due to COVID-19, they may still get reflected on your report as delinquent. Hence, you will have to be proactive in performing regular credit check and file for forbearance if you are unable to pay. The best case scenario is to continue paying at least the minimum if possible to protect your credit score. There is also a third case wherein you reported your inability to make payment to the lender, to which the lender also agreed, however, it got reflected in the credit report as delinquency. In such cases, you have to file for dispute with the credit bureaus to correct and amend the entry. A point to note is that you may need to attach the required documents with the dispute proving the agreement between the lender and you.
To help you monitor your credit status during the pandemic, CRIF along with other Indian credit bureaus are providing continuous access to your credit reports and a free credit report at your disposal!