How Coronavirus Fallout Can Affect Your Credit Score
Maintaining Your Score During Uncertain Times
The evolving coronavirus crisis can have far-reaching effects. As the economy adjusts to widespread business closures and slowed consumer spending, many consumers may experience income loss and even credit score damage. While the government has taken steps to help consumers fill income gaps—offering unemployment benefits and stimulus checks—consumers still have to take additional steps to protect their finances.
The Coronavirus and Your Credit Score
Contracting the coronavirus won’t hurt your credit score since your medical history isn’t part of your credit score. However, financial hardship stemming from job loss or pay reduction during the outbreak of COVID-19 may cause you to miss payments or rely on your credit cards more than normal.
As a result, your credit score might take a hit from negative changes to your credit report information.
Unfortunately, any credit score damage may be felt for years to come, since negative credit report information hangs around for up to seven years. Maintaining positive credit habits is more important than ever to protect your financial future, though navigating your finances during a pandemic can be difficult. Here are some tips.
Contact Your Lender or Issuer
Be proactive if there’s even a slight possibility you might miss a payment. Many lenders and credit card issuers have extended options for consumers who are experiencing financial hardship during the coronavirus. You may be able to have late fees waived, interest rates lowered, or payments deferred for several months.
Many of the biggest credit card issuers, including Bank of America, Discover, and Citi, are offering customers the option to defer payments and avoid late fees during the COVID-19 pandemic. Contact your lender, issuer, or biller and ask to learn what options you can take advantage of.
Watch Your Credit Limits
As they continue to adjust to the economy, some credit card issuers may cut credit limits. A reduced credit limit can affect your credit score, particularly if you have a high balance already. Watch your credit limits as you may not get a warning before having a reduced credit limit.
Know What Protections Are Available
Taking advantage of protections provided by the recently passed Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, can provide some relief.
“Fortunately, provisions outlined in the CARES Act gives us some protection in the way some creditors report information to the credit bureaus,” Shelley Wallace, a certified credit consultant and owner of Conquer Your Credit, told The Balance via email. “Under the CARES act, federal student loan payments are suspended through Sept. 30, 2020, and should appear on your credit report as though you are making monthly payments on time.”
Take Advantage of Hardship Options
Stretch your income by eliminating extra spending and taking advantage of forbearance and other hardship options. This allows you to focus any income on billers that aren’t as lenient. For example, eligible homeowners may be able to pause mortgage payments for up to 360 days.
As a bonus, under the CARES Act, your credit accounts will continue to be reported as current if you’re approved for forbearance or a similar hardship plan as long as you’re still current on payments.
Having an account in forbearance or deferment won’t affect your FICO score as long as your creditor or lender reports your account as “current” or “paid as agreed” during the forbearance period.
Improving Your Credit Score During the Coronavirus Outbreak
The coronavirus doesn’t automatically equal credit score damage. You may be able to improve your credit score, even during the coronavirus outbreak. For instance, lowering your credit utilization can help boost your credit score since 30% of your FICO score is based on the amount of credit you have available to you. Paying down high credit card balances, if you can afford to, and getting a credit limit increase are both strategies to improve your utilization.
Your income and recent payment history may be used to approve a credit limit increase request. Changes to either of these factors can determine whether or not you qualify for a higher limit.
Keeping an eye on your credit report is also key to improving your credit score.
“As we face some unique economic challenges, it is vital to check our credit reports regularly to ensure accurate reporting in order to protect our credit profiles,” Wallace said.
In addition to dozens of free credit report tools, you can also check your credit reports weekly through AnnualCreditReport.com through April of 2021. Review your credit report regularly for errors or instances of fraud and contact the credit bureaus immediately to clean up any inaccuracies.
Finally, make at least the minimum payment on all your accounts, except those that are in forbearance, of course. Payment history is the biggest factor (35%) in determining your credit score, so timely payments will help boost your credit score.
What to Do If Your Score Decreases During the Coronavirus
If your credit score drops during the coronavirus pandemic, all hope is not lost. Depending on the source of the damage, you may be able to recover lost credit score points. Paying down increased credit card balances and debt as soon as you can afford to will help lower your credit utilization ratio and allow your credit score to recover.
Dealing with missed payments may be a little tougher, especially once they’ve been reported to the credit bureaus. Under the CARES Act, creditors are allowed to continue to report past due payments, even if you’re later approved for forbearance or a hardship agreement. Still, it may be worth asking if your creditor is willing to remove a late payment from your credit report as a matter of goodwill.
If you’re not able to work anything out with your creditor, you can still work to rebuild your credit score over time by continuing to make timely payments on your other credit accounts. As time passes, your credit score will recover as long as you’re on time with payments going forward.
The Bottom Line
The coronavirus pandemic presents a threat to financial security, but, fortunately, being proactive can help protect your credit score from long-term damage. The best course of action is to assess your ability to pay and contact your creditors about hardship options before you fall behind on payments. Tap into any emergency savings you have and take advantage of government benefits like unemployment to stay afloat for the next several months.
Cornell Law School. "15 U.S. Code § 1681c. Requirements Relating to Information Contained in Consumer Reports." Accessed June 9, 2020.
Consumer Financial Protection Bureau. "CARES Act Mortgage Forbearance: What You Need to Know." Accessed June 9, 2020.
myFICO. "What Is Amounts Owed?" Accessed June 9, 2020.
myFICO. "What Is Payment History?" Accessed June 9, 2020.