Experts reveal the impact of covid-19 on credit scores
Covid-19 pandemic has brought a 32.9% decline to America’s GDP. Businesses have come to a standstill and economic activity has taken a plunge. Since then businesses and individuals are trying to get back on their feet and streamline their finances.
The dire economic conditions have forced the common man to borrow more credit. If you are a borrower, it is important to understand how to maintain your credit scores in these troubling times.
First, let us take a look at the impact of Covid-19 on credit scores.
Covid-19 and Credit Scores
- People are facing financial hardships across the globe ever since the pandemic took over. These financial problems are causing delays in payments and loans which negatively impact the credit score.
If you can make a payment on time and in full, you can maintain your credit scores. Short-term delayed payments do not affect much, but if you have long-term payment delays, they will affect your score. By the looks of it, Covid-19 is here to stay and habitual delays will greatly impact your credit scores.
- Most blue-collar and white-collar workers live in a paycheque to paycheque scenario. Due to the pandemic, a lot of people are no longer receiving their salaries which has caused an alarming financial situation.
According to the latest report, the US national unemployment rate reached 14.7% which is said to be the highest recorded rate since The Great Depression of 1929. We have identified some common factors that have affected borrowers and how to counter them to a better credit score.
Using More Credit
- During these tough times, most people are short of money and using more credit to make ends meet. But be aware of the fact that doing so will not only increase your interest charges but also increase your credit utilization ratio. Both these factors can harm your score.
Using more credit has a 30% impact on your credit score.
Trying to Obtain More Credit
- You may be trying to obtain more credit or applying for new credit cards because of the current situation. But beware that doing so will increase your new credit ratio, and will reduce your credit score by up to 10%. New credit has a 10% share in the scoring model so it is an important factor to consider.
Asking for new credit cards especially when you’ve maxed out your current credit, sends up red flags to creditors. This directly impacts your overall score.
How to Minimize the Impact of Coronavirus on your Credit Standing?
The impact of covid-19 on credit scores have been hard, but you can control your credit scores by avoiding some small yet important mistakes. Here are some measures you can take that will help you maintain and improve your score.
- Use Cash. Using more cash can reduce your credit utilization ratio, which helps you in maintaining your credit score.
- Do not apply for more credit. Demanding new credit can reduce your score directly. So if you want to maintain your score, avoid applying for more credit as much as possible.
- It is common knowledge that the impact of covid-19 on credit scores of Americans have been heavy. Most of them have received payment deferrals from their banks or creditors, as they have been unable to pay back loans.
If your credit score is not on point and you want to improve it, Credit Repair Today can help you fix your score. Credit Repair Today is a licensed credit repairing company that offers credit restoration services all across the United States. We can help you recover your credit score starting today.