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Challenges you may be facing and how they affect your credit score

COVID-19 has disrupted and overturned the lives of many because of state-wide stay-at-home mandates. Though designed to stop the spread of the virus, the order also caused millions of U.S. workers to lose their jobs, or to have their income cut because of reduced work hours. Many of those affected by the pandemic may heavily rely on credit cards to make ends meet. College students, for example, might have to pay forgone expenses on classes and rent. While some working from home might use their cards to make up for unforeseen costs like higher grocery and take-out bills, costlier internet plans for improved speeds and data caps, higher utility bills because of increased home occupancy and additional technological investments to enable remote work.

One of America’s major credit reporting agencies, TransUnion, paints a clear picture. The latest report in its Consumer Financial Hardship study shows three out of five Americans claim to be affected financially by the pandemic. Another 10% expect to be impacted in the future.

For many, the unexpected financial hardship is negatively impacting their credit scores. The two biggest factors that go into most scores are your payment history and amounts owed. Those two points make up 35% and 30% of your FICO score, respectively.

Payment history is a record of on-time, late and missed payments for all current and past credit accounts. When you’re looking to open a credit card or take out a loan, lenders use it to gauge your likelihood of repaying them.

The amounts you owe relates to how much of your available credit you’re using on individual and combined accounts. This is also called your credit utilization ratio and is usually expressed as a percentage. If you have a $20,000 line of credit spread out over three cards and owe a total of $10,000, your credit utilization ratio is 50%. The lower your percent for each credit card and your total revolving credit, the better it is for your credit score.

How to get a copy of your credit score

FICO and VantageScore are the two most common types of credit scores. FICO was introduced in 1981 by the Fair Isaac Corporation. It was the dominant player until the top three credit reporting agencies, Equifax, Experian and TransUnion, developed the VantageScore model in 2006. The VantageScore model has risen in prominence and is now a worthy competitor to the FICO scoring model. Most lenders typically look at your FICO scores when analyzing your creditworthiness, but an increasing number are looking at your VantageScore instead.

If you’re curious to know your credit score, the Fair Credit Reporting Act (FCRA) requires Equifax, Experian and TransUnion to provide you with one free credit report per year. All you have to do is request one on the annual credit report website. You’ll be asked for your personal information and to verify your identity by answering security questions regarding your finances.

Also, if you recently tried opening up a credit card to pay for unexpected COVID-19 expenses and were denied credit, you have the right to obtain a free credit report. The denial letter you received should state which credit reporting agency the institution used, and how you can get a copy of your report.

What are other situations granting you one free credit report per year? If you’re unemployed and seeking a job within 60 days, are on welfare or have an inaccurate report because of fraud.

Your credit score may just look like another number, but it’s a crucial figure when trying to obtain any type of financing or assessing risk, whether that’s taking out a loan, opening a new credit card or renting a new apartment.

Credit scores give lenders a snapshot of your financial profile by summarizing how you’ve used your borrowed credit as far back as 7 to 10 years. Consumers with the highest credit scores also tend to get the best interest rates and loan terms, which makes paying them back more manageable and affordable.

Resources in place to help

Many banks, government agencies and nonprofit organizations are coming to the rescue of those financially impacted by COVID-19. We have the scoop on what resources you can use to alleviate financial pressures.

Credit lenders relief assistance programs

Both credit lenders and credit bureaus are working together to put measures in place to help mitigate the monetary impact of the virus on businesses and individuals by making policy adjustments. Many banks and card issuers are waiving transaction, monthly service and overdraft fees, as well as providing eligible borrowers with payment deferrals on loans without paying late fees.

While most of these integral institutions are helping those impacted by COVID-19 as a goodwill gesture, they’re also able to offer these deals as the trickle-down effect from the Federal Reserve lowering benchmark rates nearly to zero. The Federal Reserve’s goal is to give an economic boost during the outbreak and provide banks and card issuers more wiggle room.

The benchmark federal funds rate influences the interest rates of banks borrowing money from each other, which then impacts interest rates for consumers. While lower rates are helpful for borrowers, they ultimately don’t make too much of a difference in your total debt owed or money saved on interest. If your APR drops from 20% to 18% on a $1,000 balance, the rate difference will save you about $12 in interest if you pay off your balance in 12 months without charging more to the card.

A better bet for financial relief is to talk directly to your lender to discuss all available options. See the chart below for an idea of what some major credit issuers are offering account holders, but be sure to follow up on your unique situation and what the terms and conditions are to receive relief assistance.

If you live in New York, it’s also worth mentioning the state’s Department of Financial Services is requiring banks to help New Yorkers going through financial hardship as a result of COVID-19. Many more hard-hit states may follow suit. Your credit issuer can inform you of what new relief options they have.

Credit Issuer Relief Assistance How to Contact
Ally
  • Waiving various fee
  • Defferring auto and home loan payments for 120 days
Auto:
888-925-2559
Bank:
877-247-2559
Home loans:
866-401-4742
Ally Lending (formerly HCS):
888-568-0186
Apply online
See website for the latest on COVID-19 relief assistance
Bank of America
  • Relief assistance reviewed case by case for payment deferrals
Apply online
See website for the latest on COVID-19 relief assistance
Capital One
  • Relief assistance reviewed case by case for individual needs
Call specific division or 877-383-4802 for general customer service
See website for the latest on COVID-19 relief assistance
Chase
  • Payment deferrals
Call specific division
Apply online
Sign in to send secure message
Citibank
  • Waived service fees and early CD withdrawal penalties
  • Suppression of credit reporting to credit bureaus
  • Case by case credit card forbearance
  • Case by case 90-day mortgage forbearance
  • Student loan forbearance
Credit Cards:
Apply online
Mortgage (Cenlar FSB):
855-839-6253
Student loans (Firstmark):
888-538-7378
See website for the latest on COVID-19 relief assistance
Discover
  • Relief assistance reviewed case by case
Call specific division
PNC Bank
  • Relief assistance reviewed case by case for payment deferrals on auto, line of credits, mortgages, home equity loans, and student loans
Credit card:
800-558-8472
Mortgage:
800-523-8654
Auto loan,
home equity loan or line of credit
personal loan or line of credit:
888-762-2265
Apply online for student loan payment deferrals
See website for the latest on COVID-19 relief assistance
TD Bank
  • Relief assistance reviewed case by case for payment deferrals and waiving of late payment fees
Personal loans & mortgages: 800-742-2651
TD Fit loans:
877-300-4030
TD Bank, N.A. credit cards: 888-561-8861
TD Auto Finance:
800-556-8172
See website for the latest on COVID-19 relief assistance
Wells Fargo
  • Relief assistance reviewed case by case
  • Suspending residential property foreclosure sales, evictions and involuntary automobile repossessions
Customer service:
800-219-9739
See website for the latest on COVID-19 relief assistance

Government-issued stimulus check

A historic $2 trillion economic stimulus bill was signed into law on March 27, 2020. It’s the most substantial emergency aid package in U.S. history. It’s designed to relieve financial pressures and stave off the economic crisis resulting from the COVID-19 pandemic. Some of the main elements of the package include:

  • Sending checks directly to families and individuals
  • Expanding unemployment benefits
  • Money for hospitals and health care providers in hot spots
  • Small business financial assistance
  • Loans for companies in distress

Individuals are receiving $1,200, plus an additional $500 per child under 17. According to The Washington Post, most payments began on April 15th and some as early as the week of April 13th.

But not everyone has received those amounts and within those time frames. Single filers with adjusted gross incomes of more than $75,000 in the 2019 or 2018 tax return will receive $5 less for every $100 of additional adjusted gross income. Phaseouts begin at $112,500 for heads of household and $150,000 joint filers. If your 2020 adjusted gross income falls below the phaseout, the Senate Finance Committee says you would receive a tax credit on your return.

Stimulus payments are being directly deposited to bank accounts linked to 2019 and 2018 tax returns if you authorized the IRS to send you your tax refunds in that way. If you didn’t or didn’t file a tax return during those years, the IRS will send a paper check starting at the end of April, and lasting until mid-September. If you want your money faster, you can sign up for TurboTax’s free Stimulus Registration to receive a direct deposit of your stimulus check without having to file taxes first.

Nonprofit relief funds

Local and nationwide nonprofit organizations are generating relief funds for those financially impacted by the virus. National organizations helping with meals and the safety of children include:

Food assistance

Protecting children

Essential businesses are also stepping up to help the community. For example, Comcast and AT&T are offering low-cost internet options. Providers may also be waiving late payment fees, increasing internet speed caps and keeping customers behind on payments, connected.

There’s no nationwide effort to help with housing and utilities, but some localities, like Fresno, CA and Indianapolis, IN, have paused eviction notices or will keep services connected despite nonpayment.

You can find more on financial assistance resources and emergency grants for those affected by COVID-19 at GrantSpace.

10 tips for managing your finances and protecting your credit during the pandemic

If you’re looking to guard your credit scores while still alleviating financial strains caused by COVID-19, here are 10 things you can do.

Contact your credit card issuers and lenders

Given the unprecedented times, credit issuers and lenders are deferring, reducing or even removing payments through relief programs. But to get assistance, you first have to contact them and claim financial hardship either by phone or online. Many servicers are working with customers on a case-by-case basis.

The stimulus bill also bars credit issuers from reporting accounts as delinquent to credit bureaus until 120 days after the national emergency declaration lifts. To protect your credit under the Coronavirus Aid, Relief and Economic Security (CARES) Act, your account must be up to date on payments. You must also speak to your servicer and reach an agreement for either forbearance or a modified payment plan for the rule to apply.

Reaching out to your lender or credit card issuer before you fall behind on payments is one of the most important steps to take to protect your credit score. Because of current events, credit issuers are willing to do their part in keeping you out of financial hardship. And while you’re talking to them, ask them about adding a natural disaster code to your credit report. It doesn’t affect your FICO score, but it does protect your VantageScore from delinquent reports.

Monitor your credit

Once you’ve reached an agreement with lenders, it’s essential to keep an eye on your credit scores to make sure they’re not marking accounts as delinquent. Accounts in forbearance are still to be reported as current as long as you keep up your end of the bargain. It takes around a month for missed payments to impact your credit score, so you’ll want to check your scores as frequently as possible.

You can receive one free credit report from the three major credit bureaus — Equifax, Experian and TransUnion — once per year. Many credit cards now come with free credit monitoring services that notify you of changes to your score.

If you see any credit report errors, send a certified letter to the credit bureau with a “return receipt requested” noting what information is wrong and with copies of any supporting documentation. Then reach out to your lender in the same way.

Spend your stimulus check wisely

Some people could plan on using their stimulus check to pay off credit card debt that may have piled up while they were prepping for life at home during the pandemic. Others may want to use it to pay off debt that’s been hanging around for a while. Allocating some or all of the check to pay off bills may be wise in some circumstances, but it’s not recommended if:

  • Your household income decreased because of a pay cut, unemployment or furlough
  • You’re worried about losing your job
  • You have no emergency savings to tie you over for unexpected expenses or income shortages

You’re better off stashing the stimulus check in a savings account and availing to your credit card issuer, lender and utility company’s hardship program if needed. Then, you can use your stimulus check to buy groceries, medicine and other essentials to make ends meet. This keeps your credit utilization ratio lower and your accounts current, which helps maintain or improve credit scores.

Make a budget and hold yourself accountable

If you think budgeting is too complicated, you might hesitate to start one now. But the coronavirus pandemic has made the present and near future uncertain. Every dollar counts, so it’s essential to track where money goes to avoid accidentally overextending yourself and lowering your credit score.

The easiest budget to implement is the 50-30-20 budget. Normally, 50% goes to needs like mortgage and groceries, 30% to wants like restaurant spending and manicures and 20% to debt payments and savings. But stay-at-home orders and the ensuing closures have curbed many expenses that would fall under the “wants” and “need” categories, like dining out, entertainment, transportation and hair cuts. During the pandemic, you can divert that money to other necessities, such as grocery bills, or use it to boost your savings.

Pay what you can

It can be tempting to ignore bills when you’re hit with hard times. But a minimum payment is better than no payment, because nothing drops your credit score like missing one, since your payment history accounts for 35% of your score.

And with many lenders making accommodations during the COVID-19 crisis, you don’t need to sweat making payments. Many are allowing account holders to:

  • Defer one or more payments
  • Make partial payments
  • Go into forbearance
  • Waive late fees and late-payment penalty interest increases

However, you have to reach out to your lender first to notify them of your situation. Together, you can come to an agreement that makes your bill more affordable.

Balance transfer cards

These credit cards are geared toward consumers who want to move their account balance from one credit card to another to save on interest or fees, or to take advantage of welcome offers. Balance transfer cards can lend a helping hand when you’re struggling financially by lowering your monthly payment, freeing up cash to pay off debts faster or fund other expenses.

Credit issuers will primarily look at your credit score and income levels, but may consider other financial factors in their decision. The hard-inquiry pull will temporarily decrease your credit score, but if you use your card responsibly and don’t add more charges, the higher revolving credit line will improve it.

These cards are harder to get now because many are applying for them during the coronavirus crisis, but it’s still worth looking into.

Avoid taking on unnecessary debt

The social-distancing and stay-at-home mandates have been leaving hordes of people bored and lonely. Plenty are coping by extending their morning runs, using FaceTime or learning a new craft. But for some, these aren’t viable ways to alleviate the stress — and they’re coping with “retail therapy.”

Every time you make an online purchase, your brain releases, and eventually craves, the feel-good chemical dopamine. Buying groceries online probably won’t cause issues, but online shopping sprees for clothes, tech and other desirables can bottom out your bank account and lead to debt.

Combined with unexpected COVID-19 expenses or a reduced income, payments can slip through the cracks and cause your credit score to plummet. As we ride the wave of uncertainty, you can protect your financial standing by avoiding non-essential debt.

Redeem those unused rewards

If cash is tight and you have thousands, even hundreds of thousands, of rewards points or cash back rewards, why not redeem them as cash or gift cards to help you shop for essential purchases? You’ll spare yourself from dipping into your bank account or from potentially paying interest on purchases.

Also consider switching to a card rewarding you for groceries, food delivery or any other categories you’ve been spending the most on. Claiming welcome bonuses and maxing out rewards on items you need will help you redeem rewards in no time.

Beware of financial scams

Several coronavirus scams are going around. To avoid falling prey, the FTC recommends:

  • Being careful about who you give your information to
  • Watching emails or texts claiming to be the Centers for Disease Control and Prevention (CDC) or the World Health Organization (WHO)
  • Hanging up on all robocalls
  • Ignoring at-home COVID-19 test kits and vaccination offers
  • Doing your homework before making a donation to a COVID-19 relief fund

It’s noble to want to donate money to those affected by COVID-19. But before you hand over the cash, research the charity and look for any complaints or scam claims against it to ensure your hard-earned money is used in the way you intended. You also wouldn’t want identity theft and fraud to wreak havoc on your credit score and finances because of a scam.

Speak with a credit counselor

What if you’ve spoken to your creditors and are still having a hard time managing your finances? Credit counselors will use their superpowers to help you manage existing debt and create a financial game plan. They’re trained in budgeting, consumer law and maneuvering all types of credit issues.

Best of all, many credit counseling services are free through nonprofit organizations. Two excellent places to begin your search are the National Foundation for Credit Counseling and the Financial Counseling Association of America.

Guard your credit during financial crises

Pandemic or not, any type of upheaval in our lives can throw our finances into crisis mode. But that doesn’t mean your credit scores have to suffer. There are always resources we can avail ourselves to that give us the helping hand we need to pull us through tough times.

During the coronavirus pandemic, governments, businesses and nonprofits are providing assistance for those impacted. While the government is automatically sending aid, you have to take the initiative to receive help from creditors, organizations offering emergency grants and credit counselors.

Being savvy with how you save and use your money, monitoring your credit scores and protecting yourself from financial scams are the other pieces of the puzzle that will let you weather any economic storm and come out with intact credit scores.