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How To Protect Your Credit Score During COVID-19
How To Protect Your Credit Score
Living in the time of the coronavirus pandemic has been challenging for everyone. In addition to the public health threat we’ve all been faced with, many of us are now unemployed and worried about how we’re going to make ends meet next month. Losing your job and failing to pay your bills can do lasting damage to your credit rating.
If you lose your job, you are faced upfront with the immediate issues including the loss of income which could hurt your ability to afford food and other necessities like medication. Then, below that comes some of the underlying issues that may not surface right away. This would be the inability to pay bills like your credit card.
This usually isn’t the first thing that comes to mind because of the more immediate purchases you have to make on a daily basis, like food. However, if you start to fall behind on your credit card bill or other monthly payments then you are going to find yourself in a situation where your credit score is declining rapidly and from there it could take an extended period of time to bring it back up.
If you’re one of those people struggling to make ends meet during the COVID-19 crisis, make sure that you don’t damage your credit while you’re waiting out the virus. Here are five steps you should take right now to protect your credit score during the coronavirus pandemic.
Turn off Autopay
If you use an online billpaying service and are out of work, underemployed, or are dealing with an uncertain financial status due to the pandemic, one of the first things you should do is adjust how you pay your bills. Turn off all of your autopay functions and begin paying all of your bills manually instead throughout the coronavirus crisis. This will help ensure that you don’t inadvertently pay a bill that you cannot cover and damage your credit. Additionally, manually paying your bills when you have limited income will allow you to prioritize exactly what you spend your money on during this crisis as well.
This goes along with the idea of giving every dollar that you earn a job. Take inventory of your monthly expenses as well as how much money you have saved up. See where you can cut some spending; you would be surprised at how much money you are wasting by not giving the money you have a job.
This simple switch makes it so you have to do a couple of extra things manually but at the same time it is giving you the control back over your finances. You have to consciously think about your bills and what money you are going to be using to pay them. With this setup, you minimize the risk of not having any money in your account when your bills are due because you are actively preparing for that bill to be paid.
This, of course, takes a little more discipline. When you plan out your finances to give every dollar a job you then have to practice discipline every day in order to make sure that you stick to the original plan. Once you start diverting away from the plan you are putting yourself in a tight situation.
Contact Your Lenders
If you have significant levels of credit card and other debt, you should definitely contact your creditors as soon as possible, especially if you’re worried about being able to make your payments.
In some cases, banks and other lenders may be willing to lower your monthly payments or take other measures to keep you from defaulting. Some banks may even be willing to provide relief to their customers during this crisis.
This is something that is very helpful coming from the banks and lenders. Simply giving them a call could really lower your stress around your finances because many of them are in a very understanding state. Everyone understands the struggle that most of us are facing right now so if you reach out you may be able to work something out with your bank.
Bank of America, for example, is allowing customers to request deferrals on debt payments. Wells Fargo is also waiving some fees and offering payment deferrals as well. So, get in touch with your lender, and see if they have any programs available to help you protect your credit.
Research Coronavirus Relief Options
The Federal government has enacted laws and programs to provide financial relief to millions of Americans during the Coronavirus Pandemic. Some of the new laws and legislation may be able to help you stay afloat financially during this crisis and protect your credit as well.
This is good that they are offering some sort of help, but it is always a good idea to be as independent as possible when it comes to your finances. You don’t want to rely heavily on the government because at any moment they can change policies or end programs, and you will find yourself back at square one.
For example, the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act contains provisions that allow you to request forbearance, or payment deferrals, on your mortgage for two six-month periods. If you’re out of work during this pandemic, implementing mortgage forbearance could leave you with additional cash on hand to pay critical bills and help keep your credit intact as well.
So, do your research on the CARES act and other programs available, and see if they will work for you.
RELATED: How To Fix Your Credit Score.
Pay Your Bills on Time
Apart from approved mortgage forbearance and loan payment deferrals available through government programs and select lenders, make sure you pay your other bills on time to the best of your ability.
This ties directly into what was mentioned previously about giving your savings and income a job. Some of these jobs include paying bills, grocery money, recurring investments, and so on. If you really take the time to break it down to understand what you need to be paying monthly and what you could be cutting out, then you will likely be surprised at how much money you have leftover for the expenses that really matter.
Even if you’re only making the minimum payments on your bills, this will help protect your credit throughout the pandemic. After all, payment history, or how well you pay your bills, is a critical part of your overall credit score.
Paying the minimum of your bills will not directly hurt your credit score but it is always a good idea to pay as much as you can back due to the fact that a revolving utilization that is too high can certainly damage your score.
Outside of the government programs and relief some lenders have offered, failing to pay your bills on time right now could still damage your credit.
Make sure that you understand what circumstances you are under in terms of government programs and relief when you are taking inventory of your finances. If you are granted some relief, you don’t have to take advantage of it, and it may not be in your best interest to accept these offerings if you don’t absolutely need to.
Monitor Your Credit
As the coronavirus pandemic continues, you should definitely monitor your credit more closely than you usually do. If your bank doesn’t provide you a real-time dashboard to check your credit score, there are numerous free apps available for mobile devices that do so.
Understanding where you stand is a very important part of building or maintaining your credit score. This doesn’t mean that you have to go in and check it every day, but you should periodically review your credit score and understand why it is where it is.
You can also request a free credit report every year for an in-depth review of your credit as well. If you keep your financial situational awareness throughout this crisis, you’ll know when you need to take decisive action to prevent your credit from declining precipitously.
It is very important to understand where you stand on the credit scale. Credit is monitored on a chart that ranges from 300-850 with 850 being the high end of the chart.
Monitoring your credit doesn’t amount to much if you don’t understand where you stand on the charts. We are currently in a time where you could potentially drop a ton of points off of your credit score in a relatively short period of time. So, with that, make sure that you know your credit score from month to month and understand where that credit score lies on the credit chart.
Ultimately, credit breaks down into four categories that are based on your specific credit score. These categories are listed below.
- 300-629: Bad
- 630-689: Fair
- 690-719: Good
- 720-850: Excellent
Additionally, there has been a proliferation of scams and frauds since the onset of the COVID-19 pandemic, so monitoring your credit can protect you from hackers and other criminals that could do lasting damage to your finances as well.
Look at The Bigger Picture
The game of credit is a long-term commitment. If you are in a situation where you find that your credit score is either below average or not quite where you want it to be then you are going to have to create a plan that will allow your future self to thank you.
The best way to cultivate this long-term mindset is to simply look at the bigger picture here. Take some time to sit and think about some of your goals, do you have aspirations of making a big purchase like a house or a car? Those purchases are going to require a credit check and the better your credit score is, the easier the purchase will be.
This virus has hurt people in so many ways and ultimately has no expiration date as to when all of this is going to end. Something that you certainly don’t want to do is hurt your chances down the road of moving into a new house or making whatever big purchase in the future.
RELATED: National Debt Relief.
Parting Thoughts – Keeping Your Credit Safe During COVID-19
Don’t let your credit become a casualty of the coronavirus pandemic. Instead, make sure you’re proactive and take the steps necessary to protect your credit throughout this unprecedented crisis.
The steps suggested here are a great start to keeping your credit intact over the next several months. Additionally, if you still have concerns about the coronavirus’s impact on your finances, you should reach out to a credit counselor or trusted financial advisor as soon as you can.
If you can figure out a way to protect against the downside and use some of your money to make more money through investments, then you are sure to be putting your future self in a better position.
When it comes to finances, everything is a long-term game. You have to cultivate that bigger picture mindset and understand where it is that you want to be. If you simply define your financial goals, then you are placing yourself ahead of the many people who have no idea what their goals are.
Arm yourself with the knowledge and resources you need, and you’ll be ready to weather these uncertain times. These tough times will not last forever and when they finally do pass, you will be better off since you have been equipped with this knowledge and mindset.
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