Some of us are likely to have a negative impact on your creditworthiness during this time because you will incur more debts or not pay off your balances. Do you think it is likely or unlikely that lenders will become milder in terms of credit score requirements?
Many people – many very responsible people – will find themselves in the situation you have described if this crisis lasts for an extended period of time.
People who have faithfully made punctual payments for years become criminals. People who could not imagine having a credit card balance with them in February 2020 will turn to their cards for a basic cost, either because they have lost their job or because they want to save as much of their income as they can are scared.
I cannot predict what lenders will do. But my best guess is that when all of this is over, lenders want to lend money back to all those in charge.
Think about how many people were able to buy houses a few years after losing their home through foreclosure during the housing crisis.
Regardless of how future lending develops, now, as in before you missed a payment, you can take a few steps to protect your credit rating.
The most important thing you can do for your creditworthiness is to make timely payments. Your payment history is the most important credit score factor. Delayed payments remain in your credit reports for seven years and cause serious damage to your score in the first two years.
It is important that you communicate with credit card companies and lenders when you cannot afford a payment. This is true in every situation, but is especially true during the coronavirus crisis. They may be able to put you on a plan that reduces your payment, or you may miss a few months' worth of payments without reporting that you are late. You must tell them that you have payment problems with Corona Virus and be willing to provide documentation.
Make sure you understand all the details of your consent and get everything in writing. For example, if your bank agrees to defer payments, are those payments reported as late or are the credit bureaus missed? Will interest accrue during this period?
If your bank agrees not to report negative information to the credit bureaus, make sure you monitor your balance so that you can dispute black marks if they appear in your reports.
If you can manage this crisis without making late payments (or at least not reporting to the offices), your score will be preserved.
If you miss a payment due to corona virus issues, send the offices a brief statement explaining your situation. For example: "I couldn't make this payment because I was on leave for COVID-19 and have not yet received unemployment benefits."
This cannot help your credit score. But your credit rating is usually not the only thing lenders consider when approving you. They are more likely to put negative information aside when they see that this is the result of a nationwide emergency and not a pattern of irresponsible money management.
One thing that I would worry less about right now is your credit utilization, which is the total amount of your loan that you are using, and which is also important in determining your score.
Your score will score a hit if you increase your occupancy significantly. However, if you pay off the balance in a few months, your score will go up pretty quickly. Your score will not be affected for years by the fact that you increased your credit for a few months in 2020.
At the moment it is important to have cash on hand in case you lose your job or your working time is significantly reduced. If you just have to make the minimum payment on your credit card so that you can deposit more money into your savings account, this is the rare opportunity if I think that's okay.
The good news is that, at the time of this writing, Congress had reached an agreement on a $ 2 trillion spending bill to provide stimulus checks to the vast majority of Americans and to massively expand unemployment benefits. Hopefully, with more money in our pockets and a broader safety net, we can all stay afloat with more bills and less reliance on credit over the course of this crisis.
I think the most important thing to remember is that while your credit rating is important, you are more important. If you need to top up your credit card balance or miss payments to pay for necessities like groceries and medication, give yourself permission.
Corona virus has redefined what an emergency looks like for many of us. It's great to think long term about how the choices you make now will affect your future. In this crisis, however, the most important thing is to have a plan to survive the days and weeks ahead.
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your tricky money questions to [email protected]
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