How to Protect your Credit Score during the Covid Pandemic

Who knew that the world would one day be forced to cease functioning just because of a virus. But the truth is, this is not just any virus. It is a deadly pandemic that is affecting millions around the world with a death rate of 3%. 

We are not going to give you the statistics or news of the coronavirus pandemic. You can find updated news regarding that in so many other websites. No, we are here to provide you with  information on something else; This facet of life is equally important as well: credit and credit score.

All the viruses and pandemics will not change these two facets of our life. They’ll stay the same, and as important as ever. Now, you probably have a lot of problems regarding money management, credit and credit score in the context of the pandemic/lockdown. This article could help you out with that as well. Let’s get started.

When it comes to credit standing, which are the best practices in this economic environment? 

There are some things you can take to minimize the effect of the coronavirus on your credit standing.

1. Ask for help: in case you are not able to make the minimum payment, get in touch with your creditors and lenders. Maybe they shall be able to help you out.

2. Pay what is possible: If you can pay something, pay it now. It is better to pay now than to accumulate everything for later. Always avoid making late payments.

3. Make sure your credit reports are up-to date: You get a free copy of your credit report each year from three credit bureaus, which means three free reports a year.

4. Get a consumer statement: Sometimes, you just cannot make payments. Don’t worry, it happens. For such situations, you need to have a consumer statement. This is a short statement of 2000 words to explain your financial condition.

What steps can one take to avoid falling into debt during the Pandemic?

You can fall into debt at any time, but falling now is especially dangerous because banks are not very keen to give out new loans right now. The economic situation is quite bad. More and more people are finding themselves unable to pay back their medical loans, student loans, bills and expenses.

Right now, many are facing layoffs, and therefore are in the risk of becoming just another statistic in the unemployment bracket. Because of the pandemic, income is being disrupted all over. In such a situation though, there are still a few things you can do to help yourself.

1) Budget: This is one of the most important things that you can do. Making a budget allows you to keep track of your income and expenses. This will help you to trim your expenses.

2) Pay what’s possible: In an ideal setting, you should pay your credit card bills each month. If you miss payments, interest gets added steeply. This only increases your debt. Thus, pay whenever you can. At the very least, make a minimum payment. And always keep in touch with your bank or lender.

3) Talk to creditors and lenders: They can help you if you are not able to pay right now. Perhaps they can make another payment plan for you that is easier for you.

 What about customers who are facing financial problems or have fallen into debt due to Covid-19?

If you are in this situation, you are most likely wondering how your credit score will be impacted. One thing you can do is to contact your lender directly and tell your problems. Discuss with them other options to pay. Also consider adding a Consumer Statement that explains your financial situation.

What about missed payments, deferred payments and other actions that can destroy a credit score?

Thankfully, the RBI has declared a 3 month moratorium on all loans in India. So you don't need to be worried about missing payments for the time being.

Nevertheless, it still remains true that one missed payment is enough to spoil your credit score, and these blemishes remain on your credit reports for 7 long years! However, you get 30 days after missing a payment to pay up before all this happens. However, you still need to pay late payment fees and interest.

If you are unemployed right now and cannot pay, contact your lenders and explain your financial situation. It is very much possible that they can help you by waiving off fees, allowing reduced payments, interest-only payments, etc.