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Fed: Pandemic Laws Make Credit Scores Less Reliable

Agencies can’t ding credit scores of owners skipping monthly payments via forbearance. As a result, their scores are up 14 points; non-forbearance owners are up only 7.

NEW YORK – The Federal Reserve Bank of New York warned that credit scores – which can be used to determine if consumers qualify for a home loan, auto insurance loan or any other type of loan – may have become less reliable during the coronavirus pandemic.

Banks and financial companies use credit scores to determine a consumer’s willingness and ability to pay them back. During the pandemic, however, unemployment surged and large mortgage lenders offered forbearance options to borrowers, allowing them to delay payments for as long as 18 months.

As part of the forbearance rules, credit agencies couldn’t lower or even consider a person’s forbearance when calculating their credit score.

As a result, however, scores of homeowners who took advantage of mortgage forbearance relief saw their credit scores rise an average 14 points over the course of the pandemic, according to a new analysis by the New York Federal Reserve – a bigger jump than the seven-point increase among borrowers who didn’t take forbearance on their loans.

“Current foreclosure data and delinquency statistics drawn from credit-bureau data do not accurately give a clear indication of housing-market stresses” now, some analysts warn.

Source: Bloomberg (05/19/21) Surane, Jennifer

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