Government Shutdown: Workers’ Credit Scores Still Affected

The government shutdown may have ended over four months ago, but De’von Russell is still constantly struggling.

The 31-year-old maxed out two credit cards when President Donald Trump partially shut down the government for 35 days in December and January. Without around $3,000 in salary from his job as a security guard at the Smithsonian National Museum of Natural History in Washington, DC, Russell had to bill for day-to-day expenses like gas, food and pull-ups for his young daughter. . He also applied for loans, which led to extensive investigations into his credit report.

As a result, he says, his credit rating dropped about 15 points.

“It was ‘fair’,” he adds, referring to a leaderboard on CreditKarma, a service he uses to track his score. “Now it’s in the ‘needs work’ category.”

Russell is not alone. The shutdown forced about 800,000 people out of pay, and several workers Money spoke to said their credit scores hadn’t fully recovered from the desperate measures they took to cope. Because having a low credit score can jeopardize a person’s approval for new cards, loans, apartments and more, it means not everyone can afford to move on.

“It’s frustrating to know that it limits me,” says Russell. “They’re going to look at my credit and probably be like, ‘Well, he’s not going to be a reliable source.'”

Use credit to get by

The financial situation for federal workers was not so rosy before the shutdown. Although the average salary for government employees was $90,794 in 2017, according to the libertarian Cato Institute, individual agency staffers earn far less. For example, FederalPay.org shows that the average Transportation Security Administration employee salary is $17,890, while the average FBI employee earns $37,118.

Whether they were furloughed or had to show up without pay, government workers and contractors missed two paychecks during the shutdown. And since nearly 40% of Americans don’t have the cash to cover an unexpected $400 expense, it’s no surprise that many were caught off guard, says Bruce McClary, vice president of communications from the National Foundation for Credit Counselling.

“You ended up in a situation where a lot of federal workers had very little reserve to get through what turned out to be very difficult times,” he says.

Organizations have done what they can to alleviate financial hardship, offering interest-free loans, waiving late fees for missed payments, and suggest ways negotiate reduced payments. But credit ratings posed a major threat.

They are capricious in general because they depend on so many factors. According to Experian, considerations include payment history (how often you pay on time), credit usage (how much of your credit you’re using at any given time), credit mix (the variety of your portfolio), difficult inquiries (how many times lenders have requested your report), and negative information (if you have other red flags).

McClary says a credit bill usually has to be 60 days overdue before it shows up as overdue, so people who missed a payment were likely able to recover quickly. But for those who were already on the brink and didn’t have a lot of savings, he says “the negative effect on their credit materialized quite quickly.”

The utilization rate probably had a wider impact. As McClary explains, it can be a warning sign when someone quickly goes from having a low percentage of their credit to a high percentage – which is exactly what dozens of government workers did earlier. this year when they put more than normal expenses on their credit cards.

James DelRae, a TSA uniform coordinator based in Phoenix, Arizona, says he thinks hoarding his cards with daily expenses has caused his credit score to plummet. The 57-year-old was not furloughed and received back pay, but the shutdown nevertheless hit his wallet hard. He used money from an interest-free loan of $6,500 to cover his bills and clear his existing debt. He currently owes about $1,500 on this loan.

DelRae had a credit score of 740 before the shutdown, and it just went up to 693. (The average FICO score, a type of credit score, is 704 on a scale of 300 to 850.)

“I haven’t tried to make any major purchases, but I have no doubt that if I needed to, I would be turned down,” he says.

Shutdown replicas

It’s unclear exactly how many workers’ credit scores are still down as a result of the government shutdown, and by how much. The Federal Office of Personnel Management declined to comment on the lasting impact of the closure on employees’ credit scores.

But it’s certainly on people’s minds. Anecdotes about the post-closure struggle have popped up on social media and in articles from NBC Washington and the Federal News Network. Two members of Congress have asked credit reporting companies to ignore missed bill payments when calculating scores for federal workers. Equifax offered a free credit report service to those affected by the shutdown through the end of April.

However, it is difficult to explain the lingering frustration that many government employees feel at having lost control of their finances.

It’s something that Tamela Worthen, security guard at the National Museum of African American History and Culture and other places, struggles with. The 55-year-old says she missed a credit card payment while on leave, and it’s since snowballed because she’s an entrepreneur who hasn’t received back pay.

Worthen had planned to refinance her home earlier this year to lower her mortgage payments, but she says her 620 credit score is now below the threshold she needs to do so. Since she’s also behind on her car payments and timeshare bills, she feels like her finances are out of her control.

“I had never had bad credit before,” she says. “I don’t like being in a situation like this because of someone else’s decision.”

What to do if closing hurts your credit score

If your score has dropped due to the stoppage, you have options.

You might consider adding a consumer statement to your credit report – basically, a brief explanation of the factors affecting your finances. McClary says these can give “a little edge when it comes to being proactive and telling your side of the story”, although they can sometimes be overlooked.

Instead, he says, a better idea is to contact a nonprofit credit counseling agency where experts can “help find an affordable way to get back on track.”

The NFCC has a locator here if you prefer an in-person appointment, or you can call 800-388-2227 to speak with someone on the phone. You can also see the Federal Trade Commission’s guide to choosing a credit counselor here.

Comments are closed.