What Coronavirus did to Credit Scores

According to the reports, annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020. The pandemic coronavirus outbreak which is spreading widely throughout the Asia Pacific region, Europe and North America has weakened prospects considerably. In this event, global growth dropped to 1½ per cent in 2020, half the rate projected prior to the virus outbreak.

The Insurance Code has regulated the use of credit information in underwriting personal lines of insurance since 2003. Section 2169-B prohibits an insurer from denying, cancelling, or refusing to renew a policy of personal insurance solely on the basis of credit information without considering any other independent underwriting factor. Section 2169-B also allows an insured to request the insurer to rewrite and rerate his or her policy once every 12 months based on an updated credit report. The process set out in Subsection 2169-B(5-A) might not provide timely financial relief to those consumers whose policy anniversary or renewal dates are months in the offing, or whose circumstances are not addressed by the insurer’s scoring algorithm. The Superintendent therefore encourages insurers to consider whether applicants’ or policyholders’ insurance scores have been affected by extraordinary life circumstances they have suffered because of COVID-19.

Consumers harm their credit scores by missing consumer loan payments, which can eventually  impact their access to credit in the future. In response, Section 4021 of the CARES Act requires financial institutions to report to the credit bureaus during this period that consumers are currently on their credit obligations for if they sign an agreement to defer, modify, make partial payments, forbear or get any other assistance on their loan payments from a financial institution and fulfil those requirements. Before this law was enacted, lenders could choose whether to report loans in forbearance as paid on time; with this law, these options are no longer voluntary for the lender.

Whereas there might be a chance that the affected consumers may still experience harm to their credit record because lenders generally can still choose whether to enter into an assistance agreement with an individual consumer. There are financial regulators who have encouraged lenders to work with consumers, and the CARES Act gave consumers a right to request forbearance in certain cases, for many types of consumer loans (such as auto loans and credit cards), but different financial institutions may use different criteria to decide which consumers receive assistance. That is why the consumers’ ability to protect their credit scores could vary accordingly.

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