How to Protect Your Credit Score When Funds Are Tight
The economic effects of the coronavirus COVID-19 pandemic have hit many families hard when it comes to their finances. Job layoffs/furloughs, and for some if they are still working, pay cuts. With many families already living paycheck-to-paycheck, any decrease in income could make a tight budget even tighter and make it challenging to keep up with credit card bills and loan payments. If you are in this predicament, here are a few tips that can help you protect your credit score during this crisis.
Request a Copy of Your Credit Report
Normally, all Americans are entitled to a free copy of their credit report from the three major credit bureaus (Equifax, Experian, and Transunion). However, in light of the pandemic, all three bureaus announced on April 20, 2020, that they are offering everyone free weekly credit reports for the next year. The reason for this decision is to help those who are facing financial hardship better manage their finances and take the steps they need to protect their credit.
During tough economic times, you also want to make sure that you do not fall victim to identity theft. Review your credit report regularly to make sure there are no errors, and all your information is up-to-date.
Understand the Risks to Your Credit Score
Your FICO Score is most affected by your payment history and amounts owed, which figure in at 35% and 30%, respectively. If your income has been affected by the crisis, it can be tempting to rely more on your credit cards. However, this is no time to be racking up debt on your cards and lowering your credit score.
Once you start going above 30% of your credit utilization ratio, your credit score starts taking a hit. Use your cards sparingly, and if you cannot pay the full amount you owe each month, at least make the minimum payment on time.
Dealing with Your Credit Card Debt
If you find that it is difficult to pay even the minimum on your credit cards, you should contact the provider before your payments are late. Skipping a payment or paying your bill late can negatively impact your credit score and cause your card’s interest rate to be raised. Setting up automatic payments for the minimum due will help you avoid late payments.
Many card issuers are offering financial relief to their customers who have been impacted by the pandemic. This assistance is not automatic; you must contact the provider. You could help protect your credit score by:
- Temporarily lowering or deferring your monthly minimum payment with an emergency forbearance
- Reducing your interest rate temporarily
- Establishing a payment plan to pay off your existing balance
Know Your Rights Under the CARES Act
Under the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act, specific requirements have been put on companies that report your information to the credit bureaus. These requirements are in effect only if you have made an agreement with your creditor, which is referred to as an “accommodation” under the Act, and apply to agreements made between January 31, 2020, to 120 days after March 27, 2020, or 120 days after the COVID-19 national emergency ends, whichever is the later.
- If you are current with your payments and enter into an agreement to skip, make partial or other payment arrangements, your status will continue to be reported as “current” to the credit bureaus.
- If you are already delinquent when you enter into an agreement, you must bring your account current before the provider will report it as “current,” otherwise, it will remain delinquent, which can harm your credit score.
If you can pay down your high-interest debt, now is a good time to do it. You want to do all you can do to protect your financial health and maintain healthy credit habits that will help protect your credit score.