Thus far, during the COVID-19 pandemic, many businesses and individuals have felt the heat and are left struggling. Children are out of school and learning virtually in many parts of the nation, restaurants are closed, sporting events are canceled, bars are closed, and the entertainment industry is absolutely demolished. As a result, credit scores are at risk or taking a hit. This impact on credit scores may be felt for much longer than the pandemic ends up lasting.
Credit is an essential part of life and a huge financial tool. In purchasing homes, taking out loans, buying or leasing cars, or even getting an apartment, your credit plays a part in decisions banks make on whether or not to lend to you and at what interest rate.
The Financial Strain
Sure, all qualified individuals received a stimulus check to assist financially in the beginning month of the pandemic. However, with children not in school, because many school districts are deeming the pandemic to be too much of a risk to send children back full time, many parents are struggling to find child care and are forced to stay home and out of work.
Others have lost their jobs altogether, not to mention unemployment benefits are a struggle to obtain and may not be enough to cover their cost of living. Many have been furloughed, temporarily laid off, or laid off altogether. Work is scarce to come by, as the competition for a job is a little tougher with so many applicants.
As a result, many families and individuals have turned to use credit cards as a safety net, putting their finances at further risk. In fact, according to a survey conducted by Bankrate, 33% of cardholders have made at least one credit misstep during COVID-19 – which, in turn, has negatively impacted their credit scores.
The Impact on Businesses & Credit Scores
The huge drop in business revenue as many storefronts are closed and the loss of work altogether is making an impact. Many are turning to put necessities on credit cards and it is beginning to stack up. It is not a myth that the interest rates on plastic tend to be higher than those from bank loans. This just creates more of a problem as that debt to income ratio that highly affects your credit score goes up.
Wallethub, a large financial advisory website, conducted a survey:. They found that 87 million people nationwide are fearful for their credit score as we endure the pandemic in 2020. According to Wallethub, the total US credit card debt was already at $1 trillion.
Prioritizing Your Finances to Avoid Damaging Your Credit Score
It only makes sense that priorities are maintaining your mortgage and keeping food on the table. Doing so without income can prove to be difficult, and paying credit card bills is last on the list for many Americans. Missing payments negatively affects credit scores. It is said that the longer you wait to pay the bill, the more the credit score drops. With no end in sight for the pandemic, credit scores are at risk for many.
It is a common misconception that being unemployed can negatively impact your credit score. This is not true. The fallout from unemployment, leading to missed payments, and high balances on cards and loans are what do the damage to credit scores.
Stay Informed & Find Ways to Protect Your Score
It is true that every component of people’s lives is affected right now, and credit scores fall into that. Ahas been put into place to offer assistance in protecting coveted credit scores. Requesting creditors for “accommodations” allows you to possibly put a loan into forbearance, or some creditors may allow partial payments. CARES stands for Coronavirus Aid, Relief, and Economic Security and is aimed to provide Americans with economic assistance during the pandemic.
The best thing you can do to prevent a negative impact on your credit score is to stay informed and continue to check your credit. Do research on any assistance you may be able to acquire. Knowledge is power.