How the Federal Shutdown Affects Credit Scores

The December 2018 partial government shutdown has left some federal workers without their first paycheck of the year. Following President Trump’s declaration for a federal shutdown, some 800,000 employees are put on furlough. According to the Center for American Progress, as cited by Alessandra Malito from Market Watch, furloughed workers are slated to lose a total of $2.2 billion for each week they go without a paycheck.

Trump’s executive order for halting the pay for workers was issued on the 28th of December. Subsequent reactions from union leaders such as J. David Cox, president of the American Federation of Government Employees, condemn the decree Trump has put into place, stating that such actions warrant no justification, particularly when these federal workers have numerous roles to play in the system.

 

Why the Government Shutdown Raises Concerns

Partial closure of various government offices has left the workforce in limbo. Employees can expect frozen accounts and paychecks, delayed payments for cards, loans, and mortgages, thereby affecting the workers’ credit scores. Malito adds that missed payments could result in a 90 to 110-point dropping their FICO rating.

The Internal Revenue Service, who belongs to the Treasury Department, project that the upcoming tax season may bring a delay in tax refunds. Malito reports that refunds are integral to paying off cards, loans, and mortgages.

Despite the stall in paychecks, Tobie Stanger of Consumer Reports states that deadlines for paying taxes remain in place.

The Role of Banks and Credit Unions

To address the pressing need of the government workforce, Annie Nova of CNBC reports that banks and credit unions have come forward with accommodations and options. For one, Launch Federal Credit Union, Navy Federal Credit Union, and the United States Employees Credit Union offer 0% interest loans. Similarly, banks such as Provident Bank, Huntington, Chase and Wells-Fargo have made special arrangements to accommodate late payments for federal workers impacted by the shutdown.

As of today, the shutdown sees no end in sight, even threatening to go on for months or years.