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Did You Know: Credit Reporting and Natural Disasters

By John Ulzheimer

I’m sure those who were dealing with Hurricanes Harvey, Irma and Maria had a million other things to worry about besides their credit reports and credit scores. But when storm victims, their family members and the relief workers get some normalcy back in their lives and refocus on their finances, there will be some things they will want to understand regarding credit reporting. There are, in fact, credit reporting standards and guidance from the credit reporting industry, which specifically address natural and other “declared” disasters.

Lenders and other data furnishers provide information to the three national credit reporting companies (Equifax, Experian and TransUnion) using an industry standard format called Metro 2. And these data furnishers are instructed on how to properly report under the Metro 2 format via the Credit Reporting Resource Guide or, as it is referred to more informally, the Metro 2 manual. It’s important to have a basic understanding of the Metro 2 manual because it addresses how natural disaster credit reporting is to be handled.

When reporting to the credit reporting companies, lenders can add a code to their accounts or “trade lines” which indicates that their customers or borrowers have been “Affected by natural or declared disaster.” If a lender uses this code, formally referred to as a Special Comment Code, the notification about a disaster will appear alongside the trade line for the customer’s account. It’s incumbent on the lender to insert the code initially and to remove the code after the event.

Lenders should connect with their credit bureau representative to understand how to report natural disaster codes on their customers’ accounts.

Are My Credit Scores Impacted?

The VantageScore 3.0 and 4.0 models are actually different than other credit scoring models because they allow for special treatment of victims of a natural disaster. With other conventional models, consumers’ accounts that are reported with the natural disaster reporting code may not be counted in the calculation of a credit score. As a result, both positive and negative information is potentially invisible to a consumer’s credit score and some consumers’ scores actually may decline because they are not getting credit for the positive information associated with the coded accounts.

With the VantageScore 3.0 and 4.0 models, only payment history information that would negatively impact a consumer’s credit score is “set to neutral” so consumers are not impacted if they are not able to pay their bills during this time.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.

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