COVID-19, otherwise known as coronavirus, is affecting everyone right now. Even if you aren’t medically affected by the virus, you likely are financially. Recently, a record number — 6.65 million people — applied for unemployment benefits because of coronavirus.
Many states have seen their phone lines jammed and their sites down because of the number of unemployment claims that are crushing their processing capacity.
COVID-19 and Your Credit?
Even for people who haven’t lost their job, there are financial worries. For example, some people are concerned about what the future holds for them, so even if they have money in savings, they may not want to spend it on certain things until they’re more sure of what’s going to happen.
What If You Don’t Pay?
Many student loan servicers have taken their own steps to help people who could be dealing with the financial fall-out of coronavirus since the federal government made provisions on their loans with the new legislation. For example, if you have private student loans, you may be able to pause payments for a few months.
There are other things you may still be paying for during this time, though, such as rent or your mortgage, credit card payments and utilities.
What happens if you can’t or don’t pay? How is your credit affected, and what can you do to prevent long-term financial consequences following coronavirus?
If you miss even a single payment on your credit cards or loans, it can significantly affect your credit score. If you miss a payment and you don’t speak with your lender about it beforehand, the effects are going to be the same as if you didn’t manage your finances well at any other time.
On-Time Payments = Good Credit
On-time payments are the top factor that affects your credit score. Even if you have great credit, if you miss a payment or make a payment late, your score can go down as much as 100 points.
The federal law states a late payment can’t be reported to credit bureaus until it’s at least 30 days late. If you pay before that 30-day mark, then the missed payment won’t affect your credit.
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Don’t Forget About Fees
In addition to the effects late payments can have on your score, there is also the issue of fees. If you make late payments, you may be dinged with not only a late payment fee but possibly a higher interest rate as well.
If you’ve already missed a payment or been late, make sure that you get your account current as soon as you possibly can. The longer it goes, the worse it is for your credit.
A late payment can remain on your credit report for seven years after the initial reporting, and partial payments that you send without working out an official agreement with the lender or card company are still going to have a negative impact on your credit report.
So what can you do to protect your credit?
The following are some proactive steps you can take to protect your credit or perhaps even improve your score during a challenging time.
8 Ways to Protect Your Credit During Coronavirus
1. Monitor Your Credit Report
The best thing you can do for yourself not just the coronavirus pandemic, but all the time, is to check your credit report regularly. It’s difficult to take action if you don’t know what your credit report says. This will also allow you to look for any potential errors and remedy them.
2. Do Your Best to Pay on Time
Of course, the best thing you can do during coronavirus to protect your credit is to continue making on-time payments. If you have income or emergency savings, try your best to keep up with payments. Some people think that because we’re in a pandemic somehow, they’ll automatically have leeway when it comes to making payments, and that’s not the case.
With credit cards, you may not be able to pay as much as you’d like to, but even making the minimum payment can safeguard your credit score.
3. Call Your Lenders ASAP
Under the CARES Act, which is the legislation recently passed to help Americans deal with the impact of coronavirus, you have to contact your lenders or take advantage of coronavirus assistance programs before you’re facing financial trouble. These protections aren’t automatically applied to any of your accounts.
What this means is that if you even think you could potentially face an issue making payments you will need to reach out to each individual lender. You will need to explain the situation and then ask for relief separately for all of your accounts.
What your lenders can do include forbearance and payment plans, but they aren’t necessarily obligated to do so, and it can vary depending on not just the lender but the borrower. The following are a few examples of what major lenders are doing right now.
- American Express hasn’t yet outlined specific payment options for cardholders and borrowers, but they do have a COVID-19 resources page that includes contact information if you do have questions about your options.
- Bank of America created a press release at the end of March, stating their plans to help consumers right now. For example, they said working on a case-by-case basis they are offering options for refunds on overdraft fees for consumer and small business deposit accounts, and for mortgages and home equity loans, clients can ask to defer payments. Bank of America has also paused foreclosure sales, repossessions and evictions.
- Citi is offering several different things for customers right now. For example, on Citi credit cards, they are offering a waiver of minimum payment due requirements and late fees for two statement cycles. During this time, as long as your account wasn’t already delinquent, Citi says they will report it as current to credit bureaus during the waiver period.
- Navy Federal Credit Union is offering student loan options and a Pandemic Relief Loan of up to $5,000. They are also offering refunds on credit card late fees if you request them, and a possible credit card limit increase. You can apply for the limit increase through the Navy Federal app.
- Wells Fargo has provided some guidance for customers, including consumers with home loans through the bank. On mortgage and home equity payments, Wells Fargo says they are offering a three-month payment suspension. Wells Fargo is also offering automatic suspensions of foreclosures and evictions on property as well as a suspension of involuntary auto repossessions.
4. Ask About a Natural Disaster Code
There is something called a natural disaster code that can be added to your credit report. A natural disaster code is something that indicates typically there’s been something like a hurricane that’s affected you, but it’s possible that it could be used for the coronavirus pandemic.
Consumers can’t add the code on their own. If you want to have it added, you should call either your lender or the major credit bureaus. It doesn’t necessarily help your score or protect it, but it does provide some context if your score is affected.
5. Talk to Your Utilities Providers
If you aren’t able to pay your utility services, like your phone, internet, or cable bill, this can impact your credit score too. Reach out to these providers and ask them what options are available right now. Again, it’s important to do this proactively, rather than waiting until you’ve missed a payment.
6. Protect Your Identity
At times of crisis, which would certainly apply to the coronavirus situation, unfortunately, scammers and criminals are more active. They prey on people at a time when they’re afraid and often confused as well.
This means that your financial and identity information may be more likely to be compromised right now. Make sure that you’re frequently checking your credit, not just so that you can see your score, but so that you can quickly see if your identity has been stolen.
If someone steals your identity, it can destroy your credit history and it takes time to fix the problem.
7. Be Careful Your Credit Card
While it’s a tough time financially for a lot of people right now, try to avoid turning to your credit cards whenever possible. It’s better to set a budget and try to stick with it right now, even if that means you cut quite a few expenses.
When you spend too much on your credit card, and it drives you balances up and your available credit down, that impacts your score significantly.
The amount of available credit you’re using is one of the main factors used to calculate credit scores.
Also, it’s going to be tougher to repay all that debt when things normalize.
8. Fix It If You Do Make a Mistake
If you do have a late payment, whether it slipped your mind or you felt you couldn’t pay it, your goal should be making your account current as quickly as you can. It’s better to be 30 days late than 60 or 90 days late. The sooner you work it out with the lender or card company and get your account current, the better off you’ll be.
Once you get your account current, you can then write a letter to the creditor and ask them to remove the mark from your credit report.
Right now everyone is feeling a financial squeeze, in addition to many other emotions. You don’t have to wreck your credit though. Monitor your credit, make payments on time whenever you can and reach out to lending companies, card companies and utility companies the moment you think you might not be able to make a payment.
These are good habits not just during coronavirus, but they’re applicable anytime.