Some ways to help keep your credit profile healthy during a pandemic

Credit may not be top of mind for many consumers these days. But as the pandemic and its associated economic woes drag on, they may want to give it some attention.

COVID and credit

The good news is that consumers, by and large, improved their credit profile during the pandemic, despite record unemployment and massive business shutdowns.

Thesupportprogramsthat were put in place worked. Helped by federal stimulus payments, expanded unemployment benefits, lender relief agreements and a shift in habits, Americans used less credit, paid down debt, made fewer late payments and improved their credit scores. The average FICO credit scorewas 711 in July, up 5 points from a year earlier, according to Fair Isaac, the company behind the score. AFICO score runs from300850 and is one of the most widely used metrics to determine a consumer’s credit worthiness.

“Itdefinitelyfeelslikemany consumers have taken a cautionary step in terms of saving and spending,” said Matt Komos, Vice President of Research and Consulting at credit reporting agency TransUnion. “I think there is ageneralcautiousnessamong the American consumer.”

The bad news is consumers’ financial health could be heading for a downturn soon. Some relief measures are expiring or have concluded, Congress has yet to reach agreement on a new relief package; meanwhile the jobmarketandeconomic recovery remain fragile.

Credit profiles don’t yet reflect those developments. There’s typically a lag time between a major economic event andwhen it’s reflected in the credit files of Americans.

For example, during the GreatRecession, the average national FICO score didn’t hit its lowest point until late 2009, monthsafter the recession officially ended, said Ethan Dornhelm, vice president of FICO Scores and Predictive Analytics. In the case of the COVID-19 pandemic, it could be a significant lag because of the extraordinary steps taken to help consumers.

New credit normal

Consumers should be aware that some of the rules surrounding credit have changed, and keep in mind that the decisions they make to survive these tough times will impact their financial future.

For one thing, checking a credit report has gotten easier. As part of a massive relief package passedbyCongress, known as the CARES Act, consumers can check their credit report from the three credit reporting agenciesweekly for free online at annualcreditreport.com. This expanded access is available through April 2021.

Additionally, consumers who reached some sort of relief agreement with their lender due to COVID-19 — suchas forbearance, reduced payment or other arrangement — generally should not see their credit scoreworsen.

The CARES act requires that accounts that were in good standing before any COVID-related relief accommodation was made will remain in good standing. Those that were delinquent cannot sink further but can be made current. This rule stays in place until 90 days after the national emergency for COVID-19 ends.

However, if you do not strike a relief agreement of someform, anylatepayments or other negative steps will still be reflected on your credit report.

If you are in a relief agreement but feel it has been reported improperly, reach out to your lender and the

credit agencies.

Keeping credit healthy

Consumerswho are struggling should seek help from their lender as soon as possible.

TransUnion estimates about 10% of consumers are using at least one form of relief accommodation already. Butexpertssaymany people who are eligible for help have not sought assistance yet.

Consumer finance and credit experts urge people to get help where they can. Make sure to ask questions about the terms, such ashow long the assistance will last, if interest will be accrued, or if late feesmay still apply. And howyour agreement will be reportedtothenationalcredit reporting agencies.

Consider adding a statement to your credit report to explain any negative activity. A COVID-related job loss or illness could help explain a period of late payments.

Exit plan

Any assistance you get will not last forever.

Stabilize your household’s finances asmuch as possible with relief opportunities and reassess to come up with a longer-term plan. If youhave run out the clock on a relief agreement, seek an extension if needed. If you need further help, consider talking to a nonprofit credit counselor. The Financial Planning Association and many other certified financial planner organizations are offering free assistance to those impactedbyCOVID-19aswell.

Beverly Anderson, President of Global Consumer Solutions at Equifax, said that everyone’s credit situation is unique. All the same, she reminds consumers of the basics for healthy credit: establish and maintain responsible credit habits, like paying bills on time; pay off debts as quickly as possible; apply for credit sparingly and keep your balanceswell below their limits.