Whether you’re unemployed or you’re able to continue at your job during the coronavirus outbreak, it’s important to protect your credit given the uncertainty we’re all facing. Here are some steps you can take to remain in control of your finances.
At a time when we are all being asked to stay put, the question of how to work becomes paramount.
Some are lucky enough to have the luxury of working from home and still collecting their paychecks. While some jobs naturally fit into the “work from home” scenario, a great many do not.
For instance, people in the health care industry and the grocery store business are putting their own health behind those who need their services. But on the plus side, they are continuing to get their paychecks.
Then there are the businesses that are shuttering and seeing their employees impacted, like wait staff in restaurants that have had to close their doors to indoor dining, and child care workers at centers that follow school districts’ schedules who have had to close because the schools closed (most of these centers depend on tuition to make their payroll).
The outlook for a second round of stimulus payments is uncertain, and many Americans likely can’t afford to wait until Congress irons out a deal and a new bill is signed into law. In the meantime, for those who are facing immediate income losses, first and foremost, you must take care of yourself and your family. That means you must have food on the table and a roof over your head.
Treat your credit as if you’ve lost your jobWhether you are working from home or you are laid off, my recommendation is to treat your credit like you are unemployed. The truth is companies large and small are under great stress and normal expectations about continuing employment are uncertain at best.
A popular saying right now is that this is a fluid situation and that absolutely applies to what is happening to the economy and the impact it has on our lives each and every day. In this week’s column, I’d like to share some practical things you can do to safeguard your credit through this crisis.
These are all things you can do to wrest some semblance of sanity and control over your finances today. Let’s talk about that.
How to prepare your credit for the worst-case scenario
Build up your emergency savings
Start an emergency savings account if you don’t have one already. If you find yourself suddenly unemployed I understand that you may not be able to do this right away. But if more stimulus funding from the government comes through, you might consider using a portion to start your emergency savings.
Having a cushion of cash between you and your monthly minimum payments will keep negative events from hitting you as hard and allow you to best weather any cash flow drain. Just remember to be extra judicious if you find you must dip into your emergency savings.
Keep your credit cards and lines of credit open and current
Not only will this give you the ability to stretch your spending resources if you need to, but it will keep you from having to apply for new credit in a tightening credit environment.
If you lack a credit history and need a credit card, don’t despair – there are a handful of cards you may be able to qualify for with no credit.
Use credit in place of cash, but spend wisely
Never take a cash advance if you can help it. Cash advances are one of the most expensive ways to buy anything with the possible exception of a payday loan. Save your cash. It may be irreplaceable.
Make all your payments on time
This will keep your credit report and score looking good. If you end up unemployed, when this is all over you’ll need to apply for a new job. Credit reports are checked routinely before jobs are offered. Having a clean credit report may give you an advantage over those without one.
Refigure your family budget
If you want free expert help, contact the National Foundation for Credit Counseling (NFCC) or The American Consumer Credit Counseling (ACCC). Tell them you want budgeting help, and a nonprofit counselor will help you put one together.
Adjust your tax withholding
If you are still employed, ask your HR department to raise your withholding deductions to 10. This is the limit allowed without exciting the IRS and it will give you more money in your paycheck each week. If things work out fine, you can always reduce your deductions and save the extra money for next year’s taxes.
Keep your card balances low
When using your cards, spread your purchases over multiple credit cards to try to keep balances below 30% of your spending limit. This will help protect your score.
Call your card issuers
If you think you may be at risk of defaulting, call your credit card’s customer service line and ask for options before you miss a payment. The major credit card issuers have stepped up to offer relief to customers during the COVID crisis. This will allow you the most options.
Prioritize your bill payments
Not all bills are created equal. In a pinch, pay your car loan first. In normal times, repos happen fast and you may need your car for work. Pay your mortgage a very close second and be sure not to fall 90 days behind or foreclosure may begin.
While it is doubtful that either of these actions will take place during this crisis, it is still good information to have for when things do return to normal.
None of us have a crystal ball, and bills like this may or may not actually pass, so it’s hard to say what impact they might really have.
For that reason, I suggest you do what you can without waiting for government intervention. That way, if something good does come through you will be ahead of the curve.
Remember to keep track of your score!