Living with credit

Missed a payment after a natural disaster? Your credit score may forgive you

Kelly Dilworth

The storms keep coming. On May 31, the widest tornado ever recorded in the U.S. ripped through El Reno, Okla., less than two weeks after another EF5 twister pummeled nearby Moore.

Tornado season is well underway, while Hurricane season is just ramping up. As I write, the first storm of the season — Tropical Storm Andrea — is approaching shore in the Southeast. Wildfires are burning in Southern California and New Mexico. Disastrous flooding is menacing towns in Missouri, Iowa and Illinois.

The past several years have been packed with high-profile weather events — ranging from last fall’s Hurricane Sandy, which flooded much of the Mid-Atlantic, including New York City, to the massive wildfires that tore through my home state of Texas on Labor Day weekend 2011. Missed a payment after a natural disaster? Your credit score may forgive you

The one silver lining in all this awful luck is that severe weather is now close to the forefront of everyone’s minds, which I hope means more people will be prepared the next time a natural disaster strikes within close range.

Lenders and credit reporting agencies are taking note of natural disasters’ increasing frequency as well and are now taking special precautions to protect people who missed loan payments because they were forced out of their homes by severe weather.

According to a blog post published by Experian’s Maxine Sweet last week, the credit reporting industry responded to the recent tornadoes in Oklahoma by sending reminders to more than 8,000 lenders and data furnishers to flag customers’ files with a disaster code if the customers lived in an area that was hit.

That way, people who are still recovering from the storms won’t be penalized in their credit scores for paying late.

The disaster codes are paired with all payments sent (or neglected) during a specified period — including on-time payments — and may prevent the payment history from being factored into a credit score. (Depending on the specific score, a disaster code may temporarily bar positive repayments from being used as well. However, they’ll eventually be added in, says Sweet.)

Among the most commonly used credit scores, VantageScore specifically weeds out negative payments that occurred during a natural disaster — as long as a payment’s been coded as such by a lender — but includes on-time payments made during that time.

FICO, on the other hand, simply says that it won’t penalize you if a lender marks your account as in forbearance due to a natural disaster. However, the onus is on you to work with the lender to temporarily forgive your late payment, according to FICO’s Frequently Asked Questions page.

Regardless of which score matters to you, it may be a good idea to contact your lender anyway (when you can) if you’ve been hit by a natural disaster to make sure it is on the same page. After all, as Sweet wrote on her blog, “dealing with any natural disaster can be overwhelming — from a physical, emotional and financial standpoint.”

The last thing you need is to be penalized for another seven years for living in an area that was hit by a freak event.

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