You’ve worked hard over the years to build your credit, purchase a home, and secure your financial future. What can you do to minimize the impact of the coronavirus crisis?
If there are no changes to your income: Great! In this case, just keep making your loan payments on time to keep your credit shining.
If you have lost income: Use any available savings or emergency cash reserves to continue making on-time payments. In the absence of liquid accounts:
Consider drawing down any credit lines to establish a cash reserve. Keep in mind that if home values decline, banks may limit or even shut down access to home equity lines, so it can be prudent to make your withdrawal ahead of that possibility. You’ll also want to maintain a loan balance that provides sufficient equity in your home, particularly if you plan to sell or refinance.
Borrow against an employer-sponsored retirement plan (for current employers only).
Avoid cashing in long-term investments such as stocks and mutual funds (most of which have declined significantly in value recently) unless there is no other choice.
Also, take advantage of available help.
The CARES Act provides unemployment benefits for most types of workers (including independent contractors and gig workers). The Act both supplements and extends state employment benefits.
The CARES Act also provides the possibility of some mortgage relief if you’ve been directly and negatively impacted by COVID-19. You must contact your loan servicer (the company you pay your mortgage to each month) to formalize any agreement.
Until September 2020, government backed student loans are no longer accruing interest. The entire amount you pay each month will go toward your loan balance. If you establish a forbearance program with your servicer, you may be able to postpone some payments.
Some creditors also are offering special accommodations. Several car companies and private student loan companies, for example, have announced programs for affected borrowers.
Are you expecting a Federal tax refund? Remember, there’s no need to wait until the extended July 15 deadline to file!
Most important: DO NOT just skip or reduce payments to your mortgage servicer or any creditor. Reach out to make formal arrangements. The CARES Act intends to prevent credit reporting for certain missed, late or reduced payments during the crisis. Intent does not automatically change the systems required to make this work seamlessly between servicers and the credit agencies.
By working out and documenting plans with those you owe, you will be more likely to avoid negative impacts to your credit score.
by David Rodriguez Mtg Broker PRMG
