What happens to your credit score when you’re incapacitated?

Should you ever be incapacitated for an extended period of time, your credit score is unlikely to be your primary concern. However, should your credit score decline, your ability to secure credit will be compromised.

We have a look at why your score may decrease, and how your credit life cover can protect you. We also find out whether the credit bureaus can help you in an adverse situation.

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What happens to an unattended score?

Herman Putter, CEO of ITC Credit Bureau, says that there are several situations that can lead to financial inactivity.

These may include, for example, a long holiday overseas, temporary emigration, job loss, or medical incapacitation. Irrespective of their validity, any one of these situations can impact your credit score drastically.

“If you have outstanding payments, and you haven’t made alternative arrangements for this period, your credit score will decline,” says Putter.

It’s always a good idea, Putter says, to plan ahead for unforeseen circumstances, and to have someone available who can assist you should something go wrong.  

“Depending on the circumstances, creditors are often understanding and they’re willing to find solutions to a situation that’s outside of your control.”

Credit life cover and communication

Annelene Dippenaar, chief legal and compliance officer at Experian South Africa, explains that credit life cover is a product that can help you or your loved ones resolve your debt in the event of illness, disability, or death. In some cases, it will also cover loss of employment.

“If, for example, you fall into a coma, your credit life cover may pay your debt either partially, such as for a few months, or in full, depending on the agreement,” says Dippenaar.

However, she explains, this isn’t automatic. The lender and insurer won’t know your situation, and they would need to be told by your family or friends. They would also need to receive proof of the adverse event.

“You and your credit provider can also negotiate a payment holiday retrospectively. This arrangement will then be shared with the credit bureaus to ensure that you’re not prejudiced for having been unable to settle the debt,” says Dippenaar.

Can credit bureaus amend your score?

Dippenaar says that, in the instance of an adverse life event, credit information amendments need to be arranged with your financial services provider.

“Credit bureaus report the information they receive. This means that, whether they receive positive or negative information from your credit providers, the bureaus will report it as is,” says Dippenaar.

“Bureaus cannot unilaterally amend the data they receive to accommodate a life event. This accommodation is a negotiation between you and your credit provider and, if this is agreed, a special status code will be submitted to the credit bureaus to indicate this,” she explains.  

Dippenaar says that lenders may extend the term of your loan, restructure it, or even negotiate a settlement. Whichever option they choose, the bureau information will be updated accordingly.

“Should you not be able to reach an amicable agreement, the matter may be escalated to the Credit Ombudsman, and if still unresolved, to the National Credit Regulator,” says Dippenaar.

What’s the takeaway?

Dippenaar says that you should attempt to renegotiate payment terms with your credit provider, and to specifically push for a payment holiday.

She also recommends that you check your credit life cover policies to assess whether any of your repayment obligations will be covered.

“You never know what may happen to you. Choose someone you trust, such as a family member or family lawyer, and let them know where you have credit, your account numbers, and a copy of your ID. This way, if you are incapacitated, they will be able to contact your creditors and let them know,” says Dippenaar.

“Make sure you have all the necessary documentation, including proof of illness. If you remedy the payments, this will reflect on your credit report, and you’ll be able to rebuild your credit score if it was affected,” says Dippenaar.

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