Protecting Your Credit Score During Coronavirus

It would be easy during this coronavirus pandemic to backburner any financial tasks that aren’t begging for your immediate attention. 

And if you aren’t currently applying for a loan for your small business, then you might think you can ignore your credit score for now. However, credit scores still matter, and you need to take action to protect yours.

A bonus? The CARES Act includes a provision that can help you with that.

Why Should You Pay Attention to Your Credit Score Now?

How long the economy will be shut down and how bad the recession will be are unknown. 

During normal times, your credit score matters. During this pandemic, there are 2 scenarios when your credit score may affect your to-do list:

1. Unemployment: Your income may be impacted either via job loss or reduced wages. You might find yourself unable to make loan payments. Skipping a payment could cause a downgrade of your credit score.
   
2. Refinancing: If you are fortunate and your income remains steady, then you might take advantage of falling interest rates to lock in a new lower rate. For this reason, you want your credit score to be as high as you can.

Why Do You Need to Protect Your Credit Score During Coronavirus?

So what makes your credit score more vulnerable today?

First, hackers aren’t taking a day off during this crisis. The more time you spend online, the more opportunities they have to steal your identity.

Second, the stress of this pandemic—from taking care of ill family members, working remotely, and helping children with schooling—can distract you. A distracted mind is more apt to fall for the scams that put you at risk for identity theft. Identity theft and false claims against your credit will impact your credit score. 

Third, daily routines went out the window during this crisis. 

That task of “schedule my bill payments on the first of every month” you have on your calendar? Easy to overlook or skip when your child asks again for help with their coursework. How about that phone call to your mother-in-law? The one where you walk her through ordering groceries online. Your brain could short-change normal logic and decide you can skip a mortgage payment. The bank will forgive you. They should know you lost your job as part of this recession. Right? Wrong.

So stress and distraction could cause you to make decisions that impact your credit score.

Steps to Take to Protect Your Credit Score During Coronavirus

What steps should you take to safeguard your credit score during coronavirus?

The usual steps to protect your credit score still apply: 

• Don’t miss payments on your bills
• Improve your credit usage percentage by reducing debt
• Only apply for credit that you need

However, consider taking more steps:

• Refinance loans: Locking in a lower interest rate on existing debt may help you meet your payment obligations.
• Implement a credit freeze: If you have completed your refinancing tasks, a credit freeze on your credit reports will prevent con artists from opening credit in your name.
• Shield your income flow: If you lose your job, apply for unemployment benefits to augment your personal cash flow. While income doesn’t directly impact your credit score, missing payments might. Apply as soon as you can as the process can take time.
• Call your lenders: Vendors are not legally required to reach out to you, even if they notice a change in your behavior. Call your lender if you can’t pay your bills. Tell them how your income is impacted by the virus and reach a written agreement on changes to your payment plan. The good news? Many lenders are ready for these calls and have options available.

Calling your vendor to work through a payment issue, a task that is valid even during non-pandemic times, is especially important now. The CARES Act has a section to help protect your credit score. 

How do you use the CARES Act if you are unable to pay your bills? Essentially: 

• Inform your lender that your inability to make payments is due to income loss related to the coronavirus
• Get a written agreement from your lender for a modified payment plan. This plan could include deferred or reduced payments.
• Verify you are currently designated as in “good standing”
• Follow through with payments as designated in your new agreement

In more typical times, missed payments caused you to be reported to credit monitoring companies as “delinquent.” A “delinquent” status downgrades your score. 

As long as you follow through on your new agreed terms, the provision in the CARES Act will prevent your credit score from taking a negative hit due to your payment changes. 

Your credit score will continue to be a vital piece of your financial health. Keep up with good-credit behaviors. And if your financial situation deteriorates due to the coronavirus, take advantage of the section of the CARES Act that can help protect your credit score.