The coronavirus pandemic has turned many people’s financial lives upside down.
Millions have been furloughed or laid off – with some 30 million people filing for unemployment. Others have faced pay cuts or been forced to shutter their businesses.
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As you work to keep your finances going and your bills in good standing – perhaps even through the use of deferments or payment arrangements – it’s important to also keep an eye on your credit score.
Though many people are delaying major purchases, like buying a home, a car or going on a vacation, you’ll need good credit when you eventually want to start spending again, said Charlie Wise, vice president of research and consulting at TransUnion.
“It is important that your credit is in good shape,” said Wise. “You don’t want any unexpected surprises. Consumers will want to spend again and you’ll want to keep your credit healthy.”
Here’s a step-by-step guide for staying on top of your credit score now.
1. Check your credit report early and often
You can now check your credit report every week for free.
The three big credit reporting agencies, Equifax, Experian and TransUnion, have long offered a free annual credit report. Now the three companies are offering free weekly credit reports for the next year in order to help people protect their score through any financial hardship caused by coronavirus over the coming months.
If you are working with lenders on payment accommodations, it’s important that you’re aware of all your creditors and have a clear “before” snapshot of your credit picture.
“Check to be sure that things are being reported accurately as you work with your lenders,” said Rod Griffin, senior director of consumer education and advocacy at Experian.
An added benefit of starting with the credit report?
“All the contact numbers for all your lenders are on the report,” said Amy Thomann, head of consumer credit education at TransUnion.
2. Know your protections
Under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, your credit card company or loan servicer has special requirements for reporting your payment record during the crisis.
If you enter into an agreement for assistance with a creditor – for reduced or deferred payments, for example – and are current on your account, you will be reported as current even if you are not making regular payments, as long as you adhere to your agreement.
“It will be reported as current until that forbearance is ended,” said Griffin. “If it is 30 days late when you enter the agreement, it would remain 30 days late.”
This applies to agreements set up after January 31 and until either 120 days after the March 27th enactment of the CARES Act, June 25, or 120 days following the end of the national emergency, whichever is later.
3. Know what impacts your score (and what doesn’t)
Being unemployed does not impact your credit score. But missing payments or making late ones will.
“That’s why we are recommending that consumers contact their lender proactively,” said Thomann. “Ask them if they have a hardship program. Find out how it will be reported to the credit reporting agencies.”
Late payments are generally not reported to credit reporting agencies right away. It usually takes at least a whole billing cycle, said Griffin.
“You shouldn’t panic from a credit reporting perspective,” he said, “but you should make a plan.”
Checking a report regularly, you won’t see changes every week, he said. “But if you are working with multiple lenders, and discussing options, you may see changes more frequently at a time like this.”
Don’t worry too much if you’re applying for a new credit card. Looking for additional credit should not adversely impact your credit as much as missing payments.
“Hard inquiries do impact your credit score,” said Thomann. “But it isn’t as big as a concern as making your payments on time and keeping credit utilization low.”
4. Don’t use your credit card too much
Your credit may be a critical safety net right now, but keep an eye on how much credit you are using. Running up your cards can lower your score.
Generally, using more than 30% of your available credit will reduce your score. If your limit is $10,000, for example, you need to use less than $3,000 – across all your credit cards, not just one.
“When you increase the balances it will increase your debt utilization rate and it will cause your scores to decrease,” said Griffin.
For many people, that may not be the biggest concern right now. If you’re relying on credit for basic necessities, making late payments will have a bigger impact than how much you use your cards.
“Getting food, keeping a roof over your head and making sure that everyone stays healthy are the most important considerations right now,” he said. “So this may not be the time to worry about if your score goes down some.”
But know that when you can pay those very high balances down, your use of credit will go down and your score will rise again.
5. Take advantage of ways to boost your score
Some credit rating agencies have programs to help you boost your score by giving you credit for other bills not typically included on a credit report like your utilities or mobile phone.
Experian Boost, for example, is a free program you can opt in to that allows you to get credit for making those payments. While anyone can opt in and benefit from their on-time payments, people with limited credit history will see the most improvement.
“Use all the tools and resources you can to help strengthen your credit history throughout this time,” said Griffin. “[Consumers should] add that information because it can improve their credit scores and can position them better coming out of this crisis.”
