DISASTERS SUCH AS THE global coronavirus outbreak not only can threaten your health and safety but also destroy your credit. When you’re in a state of emergency, monthly loan and credit card payments can easily get bumped off your priority list.
But your credit score plays a key role in whether you can obtain a loan, get a credit card, rent an apartment or finance a phone. That means you have to stay on top of your finances, even during the COVID-19 pandemic.
If you do that and keep in touch with creditors as needed, your credit score can weather the storm.
How Your Credit Card Issuer Can Help During the Coronavirus Pandemic
Federal and state regulators have urged financial institutions to work with customers affected by the coronavirus.
Major credit card issuers, including Capital One, Chase, Citi, U.S. Bank and Wells Fargo, have posted statements on their websites about how customers can handle their accounts during the COVID-19 outbreak.
Issuers encourage customers facing pandemic-related financial hardship to reach out for help. Some issuers are offering emergency support, including credit line increases and collection forbearance programs.
Issuers also note: Use mobile credit card apps for service, especially if call wait times are longer than usual.
Why Is Your Credit at Risk in a Disaster?
Coping with the coronavirus crisis or even a natural disaster, like a hurricane or tornado, could overwhelm you to the point that you forget about financial obligations. Missing your monthly loan or credit card payments could then damage your credit rating.
You might lose track of your finances before and after a disaster for many reasons:
- You may need to buy supplies.
- You may miss work, causing you to lose wages.
- You or your family may be impaired by health problems.
- You may become the victim of a financial scam.
- You may need to manage relocation logistics and costs.
- If you’re not on top of paperwork, you may miss some card payments.
“Due dates are one thing that can easily slip your mind when you’re focused on recovering from a disaster,” says Gerri Detweiler, education director for Nav, which provides tools for business owners to manage their credit and access financing.
What Damage Could Be Done to Your Credit?
Lenders will report negative data to the three major credit bureaus if you miss payments or you exceed credit limits, which could affect your credit score.
“If your financial troubles make their way to your credit reports, your credit scores could suffer,” says John Ulzheimer, a credit expert who has worked at credit bureau Equifax and credit analytics firm FICO. “If you run up large balances on your credit cards, certainly that will likely lower your credit scores.”
Credit bureaus Equifax, Experian and TransUnion keep your credit records, and FICO and VantageScore develop credit scores from their reports. Missing payments are a concern because payment history makes up 35% of your FICO score.
While preparing for the pandemic, you might ring up more charges than usual to cover disaster supplies, health care costs and other expenses. But you could hurt your credit rating as a result because the difference between the balance and the limit on each card, known as the credit utilization ratio, accounts for 30% of your FICO score.
The closer your balance is to your limit, the more likely you are to hurt your score. Aim for a credit utilization ratio of 30% or lower, but keep in mind that disaster prep and recovery expenses could increase the percentage of available credit you’re using.
How Can You Prepare for Credit Disruption From a Disaster?
Some disasters, such as the global coronavirus pandemic, leave little or no time to prepare financially. But if you have at least a few days, you can take steps to lessen the effects of a major disruption on your credit.
If you know that a disaster could strike soon, put your accounts on autopay to cover at least the minimum payments, Detweiler says. If you’re making minimum payments, you can avoid negative reporting for missed payments.
Prioritize your debts. Consumer advocacy groups such as the National Consumer Law Center offer tips on how to best use potentially limited funds after a disaster.
You can also prepare by storing important financial documents in a safe deposit box or safe spot in your home where you and family members can easily access them. It should include any information you would need to maintain accounts and contact creditors during a disaster.
Keep identification, such as copies of your driver’s license, Social Security card and birth certificate, where you securely store your important financial documents. Don’t forget your home insurance policy and contact information for the insurance company and your agent, which you will need in certain types of disasters.
Your insurance contacts will play a vital role after a disaster, from the initial review of potential claims to timely payment of bills.
What if You Can’t Pay Your Bills During or After a Disaster?
If you’re struggling to stay on top of financial obligations because of a disaster, you may get some relief from creditors. If a creditor doesn’t have a hardship program, ask for what you need.
Contact credit card issuers as soon as possible to report your situation and any address change if you have to relocate.
“Try to keep (your communication with creditors) as simple and to the point as possible. A lot of details may not be necessary for them to help you,” Detweiler says.
Issuers may be able to waive interest charges or let you stretch out monthly payments for a time, but you will still have to pay off what you bought.
“A number of creditors will work with customers who are in a federally declared disaster area and may be willing to let you skip a payment or waive late fees that may result from a missed payment,” Detweiler says. “Reach out to them as soon as you’re safe and taking care of the essential things.”
After you reach an agreement with creditors, make sure they honor it. If you’re allowed to skip payments, verify that they haven’t been reported as missed on your credit report. You can get one free copy of your credit report every 12 months from each of the major national credit bureaus at AnnualCreditReport.com.
Certain government programs can assist in a time of need. If you are in a presidentially declared disaster area, visit disasterassistance.gov to see what federal aid you might qualify for. The Small Business Administration, for instance, offers low-interest disaster loans to homeowners, renters, businesses and nonprofits.