Millions of Americans Are Behind on Payments… and FICO Scores Are Rising

Credit bureau Transunion reports that about 3 million auto loans and 15 million credit card accounts are in some sort of forbearance or other programs that allows people to skip payments or make partial payments. Analytics company Black Knight estimates that 4.75 million homeowners, or 9% of all mortgages, are in forbearance programs.

The country isn’t falling apart because the federal government sent almost everyone $1,200, added $600 per week to unemployment checks, handed out free cash to companies that hang on to employees, and demanded that mortgage servicers on government-backed loans allow consumers to hold off on paying and that it will not be reported to credit bureaus. Auto lenders and credit card companies are also trying to help by offering such programs, although not everyone qualifies.

It’s all led to a weird thing.  In the worst downturn since the Depression, credit scores are moving higher.

The issue is with how companies are recording and reporting missed payments. If they don’t consider a person delinquent because they’re giving the consumer a pass due to the economic shutdown, then that person will appear to have been in good standing for another month or two, or even three or four. Every month that a person remains current on payments bolsters his credit score.  But it doesn’t make the debt go away.

When the federal unemployment bonus checks go away on July 31 and the lenders once again require full payments, things will likely go south for millions of consumers, who will see their credit scores tank. After all, lenders have their own bills to pay.

Bill Himpler, president and CEO of the American Financial Services Association, which represents lenders who make car loans, personal loans and mortgages and offer credit cards, said:

“If we can’t keep the lights on because things have seized up, it’s not good for anybody.  It’s not good for the customer; it’s not good for the company; it’s not good for the economy.”

And millions of people are getting help from all kinds of lenders. According to the latest available numbers from the credit bureau TransUnion, about 3 million auto loans and 15 million credit card accounts are in some kind of program to let people skip or make partial payments. Those are probably low estimates. According to the analytics company Black Knight, 4.75 million homeowners — or 9% of all mortgages — have entered into forbearance plans.

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