Dear Penny: If My Credit Score Drops Due to COVID-19, Can I Recover?

Dear T.,

A lot of people — a lot of very responsible people — are going to be in the situation you describe if this crisis continues for any length of time.

People who have faithfully made on-time payments for years will go delinquent. People who in February 2020 couldn’t have fathomed carrying a credit card balance are going to turn to their cards for basic expenses, either because they’ve lost their job or they want to save as much of their incomes as possible because they’re afraid.

I can’t predict what lenders will do. But my best guess is that when all this is over, lenders will want to lend all those responsible people money again.

Think about how many people were able to buy houses again a few years after losing their home to foreclosure during the housing crisis.

But regardless of how future lending plays out, there are also some steps you can take now — as in, before you’ve missed a payment — to protect your credit score.

The most important thing you can do for your credit score is to make on-time payments. Your payment history is the most important credit score factor. Late payments stay on your credit reports for seven years and do serious damage to your score in the first two.

It’s essential that you communicate with credit card companies and lenders if you can’t afford to make a payment. That applies in any situation, but it’s especially true during the coronavirus crisis. They may be able to put you on a plan that reduces your payment or let you miss a couple months’ worth of payments without reporting that you became delinquent. You need to tell them that you’re having trouble making payments because of coronavirus and be prepared to provide documentation.

Make sure you understand all the details of what you’re agreeing to and get it all in writing. For example, if your bank agrees to let you defer payments, will those payments be reported as late or missed to the credit bureaus? Will interest accrue during that period?

If your bank agrees not to report negative information to the credit bureaus, make sure you’re monitoring your credit so that you can dispute any black marks should they appear on your reports.

If you can get through this crisis without making late payments (or at least by not having them reported to the bureaus), your score will remain intact.

If you do miss a payment due to coronavirus-related hardship, send the bureaus a brief statement explaining your situation. For example: “I was unable to make this payment because I was furloughed due to COVID-19 and have not yet received unemployment benefits.”

This may not help your credit score. But your credit score usually isn’t the only thing lenders consider when they approve you. They’re more likely to put aside negative information if they can see that it’s the result of a nationwide emergency, rather than a pattern of managing money irresponsibly.

One thing I’d worry less about right now is your credit utilization ratio, which is the overall amount of your credit you’re using and is also important in determining your score.

Your score will take a hit if you increase your utilization significantly, but if you pay down the balance a few months from now, you’ll see your score bounce back pretty quickly. Your score isn’t going to be haunted for years by the fact that you increased your balance for a few months in 2020.

Right now, it’s essential to have cash on hand in case you lose your job or have your hours significantly reduced. If you need to just make the minimum payment on your credit card so that you can put more money in your savings account, this is the rare occasion when I think that’s OK.

The good news is that as of this writing, Congress reached an agreement on a $2 trillion spending bill that would deliver stimulus checks to the vast majority of Americans and massively expand unemployment benefits. With more money in our pockets and a wider safety net, hopefully, we’ll all be able to stay afloat on more bills and rely less on credit as this crisis unfolds.

I think the key thing to remember is that while your credit score is important, you’re more important. If you have to run up your credit card balance or miss payments to pay for necessities, like groceries and medications, give yourself permission.

Coronavirus has redefined what an emergency looks like for many of us. It’s great to think long term about how the decisions you make now will affect your future, but in this crisis, having a plan to survive the days and weeks ahead matters most.

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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