What is going on with credit scores and credit reports as we cope with this pandemic?

Q: With the loss of so many jobs as a result of COVID-19 have credit reports and credit scores changed to make things easier for mortgage borrowers? A: There’s no question that the credit process has become more transparent due to the pandemic. For years, there has been debate regarding how to open the credit process to make it more accessible. Under federal rules, consumers are now entitled to one free credit report every 12 months from each of the three major credit reporting agencies — Equifax, Experian and TransUnion. Such free credit reports are accessible at AnnualCreditReport. com. In recent months, however, the credit marketplace has become complicated. Millions of borrowers have sought mortgage forbearance — the right to reduce or even skip monthly payments. Foreclosures and evictions have been suspended in most cases. Shelter-in-place and social distancing rules have radically changed business operations, school schedules, and shopping. More than 40 million people have joined the unemployment rolls, partly because the virus has decimated entire industries. Equifax, Experian and TransUnion in response have announced that free credit reports will be available at AnnualCreditReport. com every week for a one-year period that started on April 20, 2020. Consumers can check reports for identity theft, fraud, out-of-date items, and factual errors for free and with far greater frequency than in the past. Better credit reports can mean more accurate credit scores, and scores not reduced by mistakes and fraud. Higher scores, in turn, can lead to lower interest rates for mortgage loans, auto financing and other forms of borrowing. There’s also change underway in the way inquiries are reported. “Hard” credit inquiries — inquiries generally made by lenders and other credit providers — can lower credit scores. Not by much, and not for long, but still a reduction. For borrowers who need every point, even a small ding can be enough in some cases to wind up in a lower credit band. “Soft” credit inquiries — generally inquiries you make — do not impact credit scores at all. It used to be that when you signed up for such things as cell phones and pay TV, the providers would contact credit reporting agencies and that would be a hard inquiry. Your credit score would dip a few points for a short period. Equifax has now changed how many common inquiries are defined. “All wired and wireless phone, internet and pay TV account openings can now be categorized by service providers as a ‘soft credit inquiry,’ ‘” said Equifax executive Ken Ray in April. “We will automatically classify these new accounts as soft inquiries by June 30, 2020, and will continue to categorize them as such moving forward.” No doubt there will be other credit report adjustments as the credit industry begins to understand the new marketplace better. The new standards will result in a stronger credit profile for many consumers, something to be welcomed in the COVID-19 economy.