The pandemic has created economic hardship for Americans as many have lost their jobs or have experienced income loss, which affects their ability to pay their bills on time. Here are some tips to avoid damaging your credit score.
How the pandemic has affected American's credit
A recent Bankrate survey showed how devastating the pandemic has been for Americans who have had to choose between paying bills and keeping food on the table.
According to the Bankrate survey, one-third of U.S. credit cardholders have made at least one credit misstep since the beginning of the coronavirus outbreak in March of 2020. For example:
17 percent of U.S. adults racked up additional debt
12 percent paid a bill late
8 percent carried a balance on their credit card with the goal of improving their credit score
6 percent did not pay a bill at all
3 percent canceled a credit card with the goal of improving their credit score
What is a good credit score
Credit scores range from 300-850 based on the most commonly used credit score models FICO 8 and VantageScore 3.0. Lenders may determine a "good" credit score differently, but typically, over 690 is safe with a score of 720 or above being exceptional and ideal to lenders.
Excellent credit is 720+
Good credit is 660-719
Fair credit is 620-659
Poor credit is 619 and below
Know your credit score
One of the first things you can do to protect your credit score is to know your score. You can request a full report from all three nationwide credit reporting agencies (Transunion, Equifax, and Experian) once every year at annualcreditreport.com and check your report and look for any errors if you find any dispute any incorrect information.
Contact the credit card companies
If you cannot make payments, contact your lenders; most of them are looking to help their customers throughout these times. They may be willing to grant forbearance, deferments, or extensions or other options.
You may also be able to get fees and remarks removed if you've already missed payments and can get your annual fee waived if your card has one. Not all creditors may do this, but it's worth trying and remembering to be polite to the rep.
You can learn more from the Consumer Financial Protection Bureau.
Continue to make on-time payments
By all means necessary, make sure you make on-time payments on your credit cards. Do your best to make the minimum payments; your credit score is highly influenced on your payment history and makes up 35% of your score, according to FICO. A late payment can also show up on your report for up to 7 years, so it's in your best interest to avoid paying late.
Avoid paying late by:
Changing your due date(s). Most companies allow you to change your due date. If you have multiple cards, changing your due dates to the same date can help you remember when your bills are due.
Setting up due date reminders. Setting up email, push and text reminders can keep you aware and on top of your due dates.
Pay down your debt
If you have money available in a savings account, ensure that you have money set aside for an emergency. If you have money left over, pay off your debt, starting with credit cards with high interest and smaller balances. It is ideal to have less than 30% card utilization, and the lower you are, the better your credit score.
Take a lot at what money is coming in and what money is going out. Discover which expenses you can cut and explore ways to make extra money such as freelancing, doing focus studies, or selling things you no longer use to develop additional funds to put towards your debt.
Do not close old accounts that you no longer use
Credit age is a factor for your credit as well, so closing them will only make your credit age younger, which isn't a good thing. Instead, occasionally use them, pay them off immediately, put small monthly subscriptions, and set up autopay. Doing so will allow you to keep a healthy credit age while making more on-time payments.
Or, keep them aside for a rainy day as you pay off other cards.
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Repurpose the way you view credit cards
Credit cards can be used to your advantage if used strategically. Identify which credit cards reward you with cashback and points and use these cards for fixed expenses and set up auto-pay so that you avoid interest. You will also get cash back or points and essentially get paid to spend on your monthly bills and expenses. More on-time payments also help maintain your credit but remember, keep your card utilization under 30%.