As the coronavirus continues to wreak havoc on nearly every facet of the U.S. economy, concern is growing about what the pandemic may do to people's credit scores.
Used by lenders to evaluate applicants, credit scores are finicky even on a good day. They're calculated based on factors like late payments and utilization — both of which could spike as an increasing number of people find themselves out of work during the outbreak.
The recently passed stimulus bill does ask lenders to safeguard customers' account status during and after the crisis, but advocates say it's not enough. The National Consumer Law Center called the provision "meaningless," while Democrats in Congress have proposed additional legislation that takes credit protections a step further. Otherwise, as they wrote in an open letter, "adverse credit events caused by COVID-19 will have crippling, long-term and devastating effects for those who can least afford it."
Luckily, your score is not completely out of your control, even if you're struggling financially. Here's what you can do to protect your credit score during the coronavirus crisis.
Call Your Creditor
Bruce McClary, spokesman for the National Foundation for Credit Counseling, says his number one tip is to reach out to your credit card issuer.
"Call the toll-free number, have a conversation, and ask about what programs may be available to reduce or postpone payments over a period of time where you feel this income disruption might get in the way of your ability to repay," he says.
Many firms have relief programs already in place for people dealing with the coronavirus crisis. Citi cardholders may be able to access credit line increases and collection forbearance programs, for example, while Discover writes on its website that it has "support in place" for qualified customers. But you have to call to find out the specifics. Accommodations are often case by case.
Time It Right
Contact them before, not after, you miss a payment, according Madison Block, a spokeswoman for American Consumer Credit Counseling.
"For the most part, creditors are aware this is happening. This is something affecting millions of people," she says. "Just be upfront about it. Say, 'Hey, I've recently been laid off,' 'My hours have been cut,' 'I would like to make my payments on time, [but] I don't know if I'm able to.'"
Also, be forewarned that it might take a while on the phone. Customer service lines are slammed right now.
Ask Detailed Questions
You need to know the fine print.
McClary recommends specifically inquiring about what the impact on your credit score will be if you take advantage of a forbearance or deferment program that pauses your payments. You may also want to find out whether interest will continue to accrue (for some federal student loans, the answer is no, but this might vary in other scenarios).
Finally, ask what other protections can be put in place so you don't face legal action from the creditor to recover the balance. That way, "at least you can have the comfort of knowing, even if your credit score takes a hit, nobody's sending debt collectors after you," McClary adds.
Get It in Writing
If your card company agrees to temporarily let you off the hook, that's great. Just make sure you've got more than a conversation to rely on.
"Never enter a special repayment agreement or make any kind of adjustment to your account based on a verbal understanding," McClary says. "It needs to be in writing. That's the only way you have proof that they made a certain commitment they need to keep."
Add a Consumer Statement
Speaking of writing, Rod Griffin, Experian's director of consumer education and awareness, says to consider adding a brief consumer statement to your credit report. This can indicate you've been impacted by the pandemic and intend to make up your payments soon.
It's like "a special code our industry puts in place in response to disasters of this sort," Griffin says, noting that some scoring systems treat accounts with such statements as neutral, not negative.
Be Smart With Your Payments
If you're forced to choose between paying some bills and skipping others, all the experts say to make sure you prioritize the essentials: shelter, food, clothing, et cetera.
Those aside, you should learn which kinds of bills have the biggest influence on your credit. Griffin says utility bills, for example, typically aren't reported to the credit bureaus unless they go into collections. Ditto medical bills, which come with a 180-day grace period before appearing in your credit history.
Again, the best move here is to call and ask. And remember, you do have a bit of a buffer. Late payments are not usually flagged to the bureaus until the end of a billing cycle — 30 days or so.
Consult an Expert
If you feel like you're in over your head, ask for help.
Call the National Foundation for Credit Counseling at 800-388-2227 to be connected to a nonprofit financial counselor who can help you make a plan to get out of debt. McClary points out that the first consultation is normally free, so "there's really no reason why people shouldn't be taking advantage of this resource at this critical time."
Several financial advisors are also offering guidance pro bono. Check out organizations like the Financial Planning Association, XY Planning Network and the Foundation for Financial Planning for more.
This is a stressful time, so do what you can to safeguard your credit score... and then let it go.
"Your credit scores may not be the top priority right now," Griffin says. "Don't let a credit score cause you to make a poor financial decision in other ways."
It's normally not advisable to carry a balance from month to month, but it's OK if that's the only way you can keep your family fed right now. Ideally, you'd keep your credit utilization rate under 30% — but if you need to exceed that temporarily, you will survive.
Eventually, the coronavirus crisis will end, and your utilization rate will go back down. You'll start making minimum payments on time again. Your score will reflect that.
"Credit's a financial tool there to be used," Griffin says. "Always remember your credit history can recover."