Times of uncertainty tend to create economic chaos. Just look at stock market trends during the COVID-19 pandemic. When there is a global crisis like the novel coronavirus, you need to know how to protect your personal finances, including how to protect your credit. As your personal situation changes, your credit becomes more important, because you may need to use that credit until things return to normal.
During the COVID-19 outbreak, for example, more than 36 million Americans filed for unemployment, and because of self-quarantining and social distancing, businesses are slow to reopen. In fact, as of March 25, 2020 3% of restaurant owners had permanently closed their restaurants and 44% have closed temporarily. One study estimates that more than 100,000 small businesses have closed their doors permanently since March. You may be one of those who are newly unemployed or underemployed, and your income may have been affected by the pandemic. You also may see new expenses arise as you shelter in place or start working from home. You never know when you may need good credit, including a good credit score, to get you through tough times.
The pandemic should not have an effect on your credit score, but you want to be proactive in managing your credit, including knowing how to protect your credit score.
Everything related to your personal credit is linked to your credit score, so it is important to understand how your credit score works.
Your credit score is a ranking from 300-850 that reflects how you use your credit and whether you are creditworthy. Credit scores are managed by three credit reporting agencies—Equifax, Experian, and TransUnion—and are based on a number of factors, including your payment history (your track record of paying your bills on time), the amount of personal credit you are using, and how long you have had credit. Other factors can affect your credit score as well, such as negative reports from creditors, defaults on loans or bankruptcy, and how often you apply for credit cards or loans.
To maintain a good credit score that gives you access to more credit, you ideally want a credit score of 690 or higher. You also want to be sure to maintain a good credit score for reasons other than borrowing money. For example, landlords use your credit score to determine whether they will rent you an apartment. Potential employers include your credit score in their hiring assessment. A good credit score can also mean insurance discounts and save you from paying a security deposit on utilities or cellular phone service.
Remember that your credit score doesn’t just happen. There are proactive steps you can take to improve it. You should know how to protect your credit score, even if there isn’t a pandemic.
If you have lost your job or lost income as a result of COVID-19, you can accumulate debt quickly by using credit cards to pay your bills, or you may make late payments. These are the things that can have an adverse effect on your credit score.
To proactively manage your debt and maintain a your credit score:
If you have lost your job or had your finances affected by the pandemic, there are ways to get some relief from your money troubles:
Many credit unions offer services to help their members during these unusual times, including iQ Credit Union. Here are just a few of the benefits iQ offers to members:
These are challenging times for all of us, and you need a financial partner now more than ever. Be sure to contact iQ Credit Union to see how we can help you.