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A Farber Q & A On Credit Scores, Being Laid Off, The CERB, And More

Let’s talk about money.  I know it’s a difficult conversation to have and most of us don’t feel comfortable talking about money issues with other people.  Talking about money is essential for all of us to learn strategies for proper money management and to gain a level of financial literacy that will allow us to improve our lives financially. 

That’s why, every month, our experts answer some of your money questions here.  If you have a question for our Farber professionals, ask us online on Facebook, Twitter or through our website. Here are two questions that are frequently asked:

I was laid off. What does this mean for my credit score?

Sorry to hear you’ve been laid off during this pandemic.  The good news? Your employment status won’t directly affect your credit rating. That’s because your job isn’t something that the credit bureaus track. Instead, your credit report contains information on every loan (including credit cards, installment and payday loans) and if you pay your cell phone and utility bills on time. This includes your balances outstanding on each account, how long you’ve  had the accounts, your payment history, and other information a creditor (the company you owe money to) might need to determine if they should extend new credit to you. The bottom line?   If you’ve been laid off, but can continue your payments, your credit score should not be affected.

Of course, not having a steady income could very easily affect whether or not you can continue to pay your bills on time. If you end up missing payments, this will negatively affect your credit rating. The same holds  true if you begin to max out your credit cards to pay your bills on time or you acquire a bunch of new credit cards. The credit bureaus keep track of what percentage of your available credit is being used as well as how many new accounts you open – use more than 30% of each card regularly without paying them down and your credit rating will take a big hit.

To avoid having your unemployment situation damage your credit, make sure to make at least the minimum payment on all your accounts on time each month and modify your budget so you don’t overspend and take on new debt. 

Also, while getting laid off doesn’t hurt your credit score, not having an income can certainly make it more difficult to obtain a new loan. In addition to checking your credit report, many lenders also ask for details on your yearly income. This means you could have trouble obtaining a loan until you find new employment.

I’m really confused by the CERB and other COVID-19 relief programs. Can you help me understand them?

You’re not alone in being confused. While the government relief programs certainly are helping a lot of Canadians, it is often confusing and difficult to figure out which program you qualify for if you find yourself unable to work due to the pandemic.  There are a number of conditions in place and several different programs meant for a number of different situations.   All of that information can make it difficult to determine which program you should apply for.

To cut through all the misinformation out there we’ve created an infographic visual image such as a chart or diagram used to represent information or data. that simplifies and explains the various financial relief options available to workers directly affected by COVID-19. It can help you determine which program you could qualify for. You can download the infographic here.  Even more information can be found at our COVID-19 resource centre.

Please be aware there is little to no verification conducted on applications processed through the Canada Emergency Response Benefit (CERB) website. That means those who may not be entitled to receive any benefits can still complete the online application and receive funds from the federal government. If this occurs, applicants who did not qualify but received funds anyhow may be required to pay back the benefits at a later date, along with potentially heavy penalties and interest.

It’s also essential to be aware that the CERB is a taxable benefit. This means no deductions are made on this benefit payment at source to cover any taxes owing on the funds.  You will need to declare any CERB funds received as income on your 2020 and/or 2021 tax return and may have taxes levied on it.  So it’s important to ensure you hold back some money when you get those CERB cheques.  Stash it in your savings account and then you’ll be able to use it  to pay your taxes when the time comes.

Finally, you’ll need to be on the lookout for CERB scams. Since so many people are anxious and confused by the economic crisis surrounding COVID-19, there have been a number of fairly-sophisticated scams floating around that attempt to take advantage of us all during these unprecedented times. If you receive any information by phone, email, or text that asks for personal or financial information, be suspicious of the request.  To ensure you’re not the target of a scammer you should contact the agency or financial institution directly to verify the request. Don’t click on a “contact us” link in a suspicious email or text without pausing first to consider if it’s legitimate or not. If unsure, you can always Google the correct contact information online for the organization in question and reach out to them.  

That’s it for this month’s Q & A.  A special “thank you” for all of your questions and keep them coming!  See you next time.