If there’s one common thread throughout the crises we’ve encountered, it’s the sense of uncertainty that accompanies them. This often results in economic chaos, which may cause many people to lose their assets. The COVID-19 pandemic has had the same effect, but to a much greater degree, as the virus has forced the closure of many businesses. In turn, this has also led to mass layoffs as an effort by companies to preserve themselves.
The goal here is to extend our resources as best we can in order to survive. However, you should be looking beyond this goal to analyze your next steps in a post-pandemic landscape. It’s easy to lose sense of your finances during a pandemic, especially when you kick into survival mode. This can easily drive an individual to rack up debt if they aren’t careful with their money.
A bad credit score will hinder your ability to borrow money when you need it most, and in a post-pandemic world, this is going to be crucial. You never know when you might need good credit to get you through tougher times. So, with this in mind, how can you protect your credit score during the pandemic?
The Pandemic Won’t Affect Your Score
COVID-19 shouldn’t have an effect on your credit score, as Congress has recently mandated changes to the rules on credit reporting in light of the pandemic. Missed bills, overdue medical debt and other things that are beyond a borrower’s control are not penalized. Be that as it may, it’s still important to actively manage your credit score.
Make Minimum Payments As Often Possible
This may be easier said than done. Even if you’re unable to make a payment, you should never ignore credit card bills. Much like loans, it’s important to get in contact with your credit card company and to inform them of your situation so you can discuss a payment plan that’s achievable.
Maintain a Debt-to-Income Ratio
Your debt-to-income (DTI (News - Alert)) refers to the difference between your monthly gross income and your monthly debt liabilities. Keeping your DTI below 43% shows creditors that you are managing your debt properly. This is important, especially if you plan to buy a house later on, which requires a DTI of 36% or less.
Don’t Take On Unnecessary Debt
With your DTI in mind, you should avoid increasing your debt unnecessarily. Applying for more credit cards or borrowing a personal loan should be the last thing on your.mind. Doing so would also raise your DTI. If you really need money, you can consider loaning options that do not affect your credit score. A prime example of this is a title loan. So, when do title loans affect your credit? The good news is they don’t, making them a reliable last resort.
It’s no secret that these are difficult times, but the fact remains that it’s important to keep your expenses and your credit in check. The pandemic isn’t going to last longer than the effects of a low credit score. Always keep that in mind, and manage your money well.
