People are often devastated when they suddenly lose their jobs. As a result of the ongoing coronavirus disease of 2019 (COVID-19) pandemic, especially affected are those who have a family to raise and monthly obligations to pay to creditors. It’s a stressful situation if you think your “rainy day fund” is not enough to cover daily expenses and bills for the next couple of months.
After losing your job, it’s advisable that you immediately notify all your creditors about your situation so that they could provide you with workable options based on your financial situation. This is important especially if you expect to miss your monthly mortgage payments, you need to notify your servicer and ask if you could apply for mortgage forbearance.
Being unemployed doesn’t directly affect your credit score because filing for unemployment doesn’t appear on credit reports. However, during these difficult times, there are some actions that may indirectly hurt your credit. Because of your limited income, your credit score may decline if you fail to settle your obligations to creditors. While looking for another job here are some tips that you may consider to protect your credit:
1. Adjust your budget
Because you’re not going to earn income for the next couple of weeks (or worst, for months) and you are still uncertain if you’re going to land a new job anytime soon, you may want to adjust your expenses to help you stretch any severance benefits or paycheck you got from your previous employer. For example, you may want to cut down some of your lifestyle spending and unnecessary subscriptions that you could live without. Adjusting your budget could help you prioritize bills and expenses that you need to settle. Moreover, it could prevent you from taking out a cash advance or applying for new credit that could increase your risk of indebtedness.
2. Maintain your credit card accounts open and pay the minimum
Notify your credit card issuer about your financial situation and ask if you can get some relief. Credit card companies have taken steps to help consumers who have been affected by COVID-19. Try to pay your credit card bills with the minimum payment due on or before the due date. Missing or making late payments could damage your credit score. Once you’ve paid your credit card(s) balances in full, you may want to refrain from using it for a while. Other people who have several credit card accounts find it beneficial to close other accounts after paying off any balances and stick with a basic credit card for daily expenses.
3. Review your credit reports
Equifax, Experian, and TransUnion (a.k.a. the three credit bureau giants) now offer free weekly online credit reports to all Americans who are experiencing financial hardships because of the COVID-19. You can monitor your credit reports every week until April 2021. Take this opportunity to request your credit reports and examine them thoroughly. Ensure that all the information in your credit reports is accurate. Watch out for any slight changes and suspicious transactions in your credit reports. Immediately file a complaint if you see any slight errors or inaccuracies in your credit reports like a misspelled name, wrong address number, or wrong entry. It could be a sign that someone could be using your identity to gain credit.
Why is it important to protect your credit?
While it’s possible to live without a credit history, most people consider building good credit so that they can take advantage of many financial opportunities that may arise. If you have good credit reports as reflected in your credit score, prospective employers will likely consider you for a job. Moreover, you can get favorable interest rates if you take out a mortgage to buy a home or take out a car loan. Most businesses will consider making a transaction with you if they know your good at managing your finances as shown in your credit reports.
Losing your job because of the COVID-19 pandemic is stressful especially if you have bills to pay. While unemployment doesn’t affect credit reports, it’s important that you take doable actions to protect your credit. Protecting your credit is important if you want to gain access to the many opportunities that require a good credit score. The tips mentioned here could help you protect your credit if you lose your job because of the COVID-19 pandemic.