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Many people are experiencing unprecedented financial hardship as a direct result of the COVID-19 pandemic. There is no doubt that these are uncertain and frightening times for everyone.

Government agencies, financial institutions, and nonprofit credit counseling services offer relief options, but in most cases, you need to be proactive to take advantage of them. If you are experiencing a loss of income or other financial burdens as a result of the crisis, here are some ways to protect your credit score.

How to protect your credit score

Unemployment file

the CARES Law dramatically expanded the availability and eligibility of unemployment benefitsincluding making benefits available to freelancers and concert workers and paying an additional $ 600 per week to anyone who qualifies. (The added benefit is due to expire end of July. If you were not entitled to unemployment benefits before the pandemic, you can now apply.)

Take advantage of relief programs

Most lenders offer a deferral or forbearance on everything from credit card debt to mortgages. There is a caveat: you will not automatically be enrolled in these programs. You have to ask. If you are suffering from financial hardship due to the pandemic, contact your lenders as soon as possible to inquire about their assistance programs.

Seek credit counseling

“Contacting a credit counselor is something someone should do immediately, as soon as they even have an indication that they are going to lose their job or experience a reduction in income,” explains Bruce mcclary, vice president of communications at the National Foundation for Credit Counseling. The National Foundation for Credit Counseling can put you in touch with a credit counselor for free if you visit NFCC.org.

Reduce discretionary spending

Budgeting has always been an important part of being financially healthy, but COVID-19 has completely reshaped the way most of us think about what purchases are necessary for survival. “We often talk about needs versus wants,” explains Rod Griffon, senior director of consumer education and advocacy at Experian. “Many of us now see needs as really vital things. Before, a desire was something you wanted and a need was something you really, really wanted. Now it’s all about food, clothing, and shelter.

Make minimum payments on your credit cards

If you can continue to pay off your debts during the pandemic without asking for a postponement or forbearance, do so. Even if you only pay the minimum balance, you will avoid taking on more debt, which could lead to more financial hardship. While relief programs are incredibly useful for those who need help, you shouldn’t freeze your accounts unless absolutely necessary. “You’re kind of a kick in the box down the road,” McClary says. “It’s probably not a good idea to log into a deferral program that you really don’t need right now. “

If you have savings or an emergency fund, use he

A lot of people have emergency savings accounts with several months of living expenses set aside for a rainy day. Now is the time to start using those funds if needed. At the very least, these funds can help you get by until unemployment checks arrive or more permanent relief programs become available.

Communicate with creditors

Creditors are keenly aware of the widespread financial hardship caused by COVID-19, and some of the assistance programs they have made available as a result are unprecedented. Keep in touch with your creditors and be honest about your financial situation. You might be surprised at the help you receive.

Pro tip

If you are having financial difficulties, you should open up the lines of communication with your lenders and seek out assistance programs under the CARES Law.

What Lowers Your Credit Score?

In these tough financial times, knowing what is hurting your credit rating is important to avoid taking actions that hurt your long-term financial health. The last thing you want is damaged credit on top of the hardship caused by COVID-19.

History of late payments

Making at least the minimum payments on time is imperative to maintaining good credit. But if you might be late, call your lender. Deferment and forbearance programs could help you relieve yourself without incurring a derogatory mark on your credit report.

Accounts in collections

Seriously overdue accounts will eventually be sent for collections. But even if you entered the crisis late in paying, relief programs underway are designed to effectively block your account where it was until the situation improves. For example, if you were 30 days late at the start of the crisis, you will be 30 days late without accumulating additional delinquency until the relief programs are lifted. But again, you need to be proactive in asking for relief.

Loan default

If you default on a loan during the COVID-19 financial crisis, currently there is no protection in place to prevent it from appearing on your credit report. It is imperative to contact your lenders as soon as you start to experience financial difficulties.

Bankruptcy

Despite COVID-19 closures, many courts are always manage bankruptcy filings remotely. Like defaults, any bankruptcy incurred now will show up on your credit report for seven to 10 years like always. In an ideal situation, you should contact your creditors to defer payments before bankruptcy becomes necessary.

Foreclosure

A foreclosure can drastically reduce your credit score and can stay on your report for seven years. If you’re having trouble paying your mortgage, first contact your lender and explain your situation. If you have any difficulties related to the pandemic, you can ask abstention (temporary break or reduced payment) up to 180 days under the CARES Act. This option will be available until the national COVID-19 emergency is declared over or no later than December 31, 2020.

High use of credit

Running your credit card bills to cover expenses due to financial hardship during the COVID-19 crisis will increase your use of credit and affect your credit score. But what most consumers don’t know is that their credit utilization rate could increase during the crisis even if they don’t increase their balances. “People who may not have borrowed a lot have seen their credit card issuers reduce their credit limits in order to limit risk,” says McClary. “Bringing those credit limits closer to the balance already owed can have a negative impact on someone’s credit rating. “

Too many credit requests

In addition to the usual implications of too many credit inquiries on your report, the financial crisis has caused lenders to reduce the types of credit accounts available. You may want to wait to apply for new lines of credit until the banks start to recover.

In conclusion

If you are having financial difficulties because of the coronavirus, it is important to know your rights. You may be entitled to relief programs from your lenders based on the provisions of the CARES Act. “This includes things like forbearance, payment waivers and deferrals,” says John Ulzheimer, formerly of FICO and Equifax. If you are in good standing and live until the end of your housing, the lender should notify you that you are up to date with the credit bureaus. This act will contribute to protect your scores the potential negative impact of derogatory credit reports.

“But,” warns Ulzheimer, “you have to ask for an accommodation. It’s not automatic.

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