How to Protect Your Credit Score During Coronavirus

Don't let the current crisis destroy your credit.

The COVID-19 outbreak is hurting Americans in more ways than one. Not only are many people getting sick, but countless workers have already lost their jobs or seen their wages take a hit due to new restrictions and guidelines that are forcing the public to socially distance.  

If your income has dropped in the past few weeks, you may already be in a situation where you're not sure how you'll manage to pay your bills. Of course, now's the perfect time to tap your emergency fund, if you have one. But if you don't, you'll risk falling behind on your expenses and obligations. And that could prove troublesome from a credit score perspective.

Of the various factors that go into calculating your credit score, your payment history carries the most weight. Payment history speaks to your ability to pay your bills in a timely manner, and without an income, that may prove challenging. Here's what to do if that's the scenario you're faced with.  

1. Talk to your lenders

Maybe you owe money on a couple of credit cards, or you have an auto loan you need to make a payment on every month. You may have trouble keeping up with your payments if your income has dropped or disappeared out of the blue -- whether it's because the business you worked for had to shut down, or because you're unable to do your job remotely and it's not safe to go to your place of work. In that case, your best bet is to reach out to your credit card or loan issuers and ask for help. Explain your situation and be prepared to offer proof that you're currently without an income. You may get the option to pause your payments temporarily without having it count against you.

2. See which service providers are offering relief

A number of utility and telecom companies are granting customers leeway if they can't pay their bills in the near term. Call your providers and find out what options you have in this regard. You should also confirm that your lack of payment won't be reported to the three major credit bureaus (Experian, Equifax, and TransUnion), where it could otherwise serve as a black mark on your record. 

3. Ask for a credit limit increase

Your credit utilization ratio, or the extent to which you use your revolving credit at once, plays a big role in determining what your credit score looks like. The lower it is, the better. Specifically, you need that ratio to stay at or below 30% to avoid a hit to your credit score. 

However, chances are, if you've lost your income, you may need to charge extra expenses on your credit cards in the coming weeks, thereby racking up a balance and sending your utilization ratio into unfavorable territory. To combat that, call your credit card issuers and ask for a higher credit limit so you'll have more scope to spend without a negative credit score impact. Of course, you should only be using your credit cards to charge essential expenses, not splurges. Now just isn’t the time for those. 

Maintaining good credit during a financial crisis is important, because the higher your score, the more likely you are to be granted the option to borrow money when you need to. We don't know how long the COVID-19 outbreak will last, but if you take these important financial steps to protect your credit, you'll have a greater chance of coming out of this situation with your score unharmed.