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.
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).
There is promising news of some help from the government in the form of cash payments to individuals, but that may take some time to come through. 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 job
Whether 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 the aforementioned cash payments from the government come 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.
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 50% 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. 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.
You may get a reprieve from negative credit report items
As I am writing this column, the federal government is looking to put credit reporting protections in place. A bill (the Disaster Protection for Workers’ Credit Act) has been introduced in the House that would place an immediate, four-month moratorium on all negative credit reporting.
If in four months things are getting back to normal, that might be a good thing for consumers who are unable to pay their bills due to unemployment caused by this crisis. But I do worry that this action might make the situation worse rather than better in the long run. Creditors might feel they can’t rely on credit reports before making a loan, which might seriously damage future lending.
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!