How to Prevent COVID-19 from Impacting Your Credit Score.

Since the beginning of March, COVID-19 has turned millions of Americans’ financial situations upside down.

While the economy is showing signs of recovery, many Americans are still unemployed and having to dip into their savings to cover basic living costs. To that end, the question remains: How do you protect your credit score? Read on for some tips.

1. Contact your lender aas soon as possible if you can’t make a payment. On-time payments are the largest factor affecting your credit score. Many lenders continue to offer emergency support such as deferral or forbearance options that may allow you to reduce or suspend payments for a fixed period. However, if those terms are set to expire soon, you should “call your lender to discuss what options are available,” says Rod Griffin, senior director of consumer education and advocacy for the credit reporting agency Experian.
3. Look for ways to boost your credit score. If you have limited credit history, building credit can be challenging. Experian’s free tool, Experian Boost, can help raise your FICO score instantly by giving you credit for on-time utility, phone and streaming service payments.
5. This type of alternative financial data, known as “consumer-permissioned data,” allows you to manage your data with confidence and qualify for better credit. In fact, two out of three Experian Boost users see an increase in their credit score with an average increase of about 12 points. That’s enough to make a significant difference when applying for a loan or any type of credit.
7. Consider getting a balance transfer credit card or one with an introductory offer. Handled responsibly, this actually has the potential to increase your credit score while either buying you time to pay off your debts or getting a “welcome bonus” of perhaps hundreds of dollars. If you’re looking for personalized credit card options, tools like Experian CreditMatch can help you get the right card based on your financial profile.
8. Pay attention to your utilization ratio. Your credit score is based on your total balance-to-limit ratio (a.k.a. “utilization rate”). Adding a new credit card increases your total available credit. As long as your total credit balance remains the same, you’d be decreasing your utilization rate, which can potentially boost your credit score. Be sure to transfer balances to the card with lower interest and be mindful of temporary low interest rates.
10. While any balance can cause scores to decline, you should keep your utilization under 30 percent, both overall and on individual accounts. Shooting for a top credit score? “Keep your utilization in the single digits, or even better, pay your credit card balances in full each month,” says Griffin.
12. Fight fraud by checking your credit report regularly. According to the Federal Trade Commission., there’s been a huge jump in attempted credit – and debit-card fraud since the pandemic hit; consumers have lost more than $100 million to COVID-19-related fraud, so checking
14. You can receive free weekly credit reports from Experian, Equifax and TransUnion through April 2021 by visiting AnnualCreditReport.com. Experian also offers a free credit monitoring service that includes real-time alerts, credit score tracking, and an updated report every 30 days.

What Lowers Your Credit Score?

During these difficult financial times, it’s important to know what hurts your credit score so you can avoid taking actions damaging your long-term financial health. The last thing you want is damaged credit on top of the hardships caused by COVID-19.

Late payment history

Making at least the minimum payments on time is imperative to maintaining good credit. But if you’re in danger of being late, call your lender. Deferment and forbearance programs could help give you relief without incurring a derogatory mark on your credit report.

Accounts in collections

Severely delinquent accounts will eventually be sent to collections. But even if you entered the crisis with a late payment, current relief programs are designed to effectively freeze your account where it was until the situation improves. For example, if you were 30 days late at the beginning of the crisis, you’ll stay 30 days late without accruing additional delinquency until the relief programs are lifted. But again, you have to be proactive in asking for relief.

Loan default

If you default on a loan during the COVID-19 financial crisis, currently, there aren’t any protections in place to keep this off your credit report. It’s imperative to contact your lenders as soon as you start experiencing financial difficulty.

Bankruptcy

Despite COVID-19 shutdowns, many courts are still handling bankruptcy filings remotely. Like loan defaults, any bankruptcy incurred now will appear on your credit report for seven to 10 years just as always. In an ideal situation, you should contact your creditors to defer payments before bankruptcy becomes necessary.

Foreclosure

A foreclosure can significantly lower your credit score and can stay on your report for seven years. If you’re struggling to pay your mortgage, first reach out to your lender and explain your situation. If you have a pandemic-influenced hardship, you can request forbearance (temporary pause or lowered payment) for up to 180 days under the CARES Act. This option will be available until the COVID-19 national emergency is declared terminated or as late as December 31, 2020.

High credit utilization

Running your credit card bills up to cover expenses due to financial hardship during the COVID-19 crisis will increase your credit utilization and hit your credit score. But what most consumers don’t know is their credit utilization rate could go up during the crisis even if they don’t increase their balances. “People who may not have been borrowing a lot have seen their credit card issuers actually lower their credit limit as a way to limit risk,” says McClary. “Bringing those credit limits closer to the balance already owed can have a negative impact on somebody’s credit score.”

Too many credit applications

In addition to the usual implications of too many credit inquiries on your report, the financial crisis has caused lenders to reduce the types of credit accounts available. You may want to hold off on applying for new lines of credit until banks begin to recover.

In Conclusion

If you’re struggling financially as a result of coronavirus, it’s important to know your rights. You may be entitled to relief programs from your lenders based on the provisions in the CARES Act. “This includes things like forbearance, payment waivers, and deferments,” says John Ulzheimer, formerly of FICO and Equifax. If you’re in good standing and you live up to your end of the accommodation, the lender has to report you as being current to the credit bureaus. This act will help to protect your scores from the potential negative impact of derogatory credit reporting.

“But,” Ulzheimer cautions, “you have to request an accommodation. It’s not automatic.”