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Here comes the next big problem for furloughed workers

MarketWatch logo MarketWatch 1/11/2019 Alessandra Malito

Furloughed government workers are likely missing their first paycheck of the new year on Thursday, and with that comes the potential for late credit card and mortgage payments.

The stakes are high for some federal employees. About 800,000 government workers are going without pay under the partial government shutdown, sparked by a debate between President Trump and Congress over funding a border wall. Affected employees are expected to lose an estimated $2.2 billion every paycheck, according to the Center for American Progress, a left-leaning advocacy group. Back-pay for unpaid workers is customary, but not guaranteed.

Eventually, missed payments could lead to a drop in their respective credit scores, although experts say that’s unlikely to happen immediately. These workers face a more pressing dilemma, however: There is no paycheck in sight. This partial shutdown is the second-longest in 40 years, and President Trump has said it “could be a long time” before it’s over. 

Furloughed workers who have already been grappling with missed payments may have the most to lose. Credit.com has guidelines on how long it takes for a missed payment to hurt your credit score: One 30-day late payment should not cause lasting damage, unless it’s part of a persistent pattern. A late payment of 60 days will likely do more damage, again if it’s part of an ongoing problem. A 90-day late payment could hurt your score for seven years, it adds.

Related video: Furloughed Firefighter Fights To Protect Family During Government Shutdown (provided by CBS Los Angeles)

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The number of days credit-card lenders give borrowers before reporting a missed payment to credit bureaus varies from lender to lender, said Tim Devaney, credit-card expert at personal finance-site Credit Karma. Typically, borrowers could expect major credit bureaus to be notified 30 days after the payment was due.

Meanwhile, the millions of Americans who receive food stamps might only have until February before the Supplemental Nutrition Assistance Program runs out of funding because of the partial shutdown. Government workers and their family members took to Twitter to share their frustrations and what the shutdown means for their credit:

“If you’re living paycheck-to-paycheck and this causes you to miss a credit card payment or your mortgage or auto loan, your credit won’t be so forgiving,” he said. Approximately 4 in 10 Americans can’t cover a $400 emergency expense, according to the Federal Reserve Board’s Economic Well-Being report.

A missed payment could amount to as much as a 90- to 110-point drop on a FICO score of 780 or higher, according to Barry Paperno, community director for Credit.com. But there are other factors to consider, including account holders’ history with collection services, outstanding balances on delinquent accounts and the length of their credit history. 

If affected federal workers do end up having a missed payment documented on their credit report, they should explain what happened, said Matt Schulz, chief industry analyst at CompareCards.com. Some banks have even delayed credit reporting for furloughed workers in the past, he said, though there’s no guarantee of that. “It’s worth your time to make a phone call,” he said.

Borrowers should contact their lenders immediately, for any outstanding loan or credit, including mortgages, auto loans, student loans and credit cards. Some banks and credit unions are offering assistance through a hardship hot line, waived overdraft fees or a zero-interest loan.

Other lenders may work with individuals on a case-by-case basis, especially given this is a temporary issue and no fault of the borrower, said Beverly Harzog, a credit-card expert and author of “The Debt Escape Plan.” “The worst thing you could do is let all of this pass and wait,” she said. “Be proactive to protect yourself and your credit.” 

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