You may be wondering how your small business is going to survive the coronavirus. Maintaining your credit score is a good place to start. While a credit score can be a factor used by financing companies, it is not the only factor when determining whether or not to provide financing to your small business. Credit scores are a simplified confidence indicator of the ability to pay commercial financing and make payments on time. They simplify the process of analyzing your payment history on your loans and other financing and credit cards to boil them down to a cumulative number, which can assist a financing company when it comes time to making a decision on providing captial.
During COVID-19, some small-business owners have thought they don’t need to worry about the protection of their credit score. But the fact is, they do. Although much of the economy is still shut down, credit scores can still be a contributing factor when it comes to obtaining financing or in other aspects of daily life.
If you’ve been impacted with hardship during COVID-19, your credit score may follow suit. Luckily, we’ve organized some strategies to help you protect your credit score during COVID-19.
If you have questions, please contact us.
We’re not sure how long the economy will be shut down, or how bad the recession will be. Your credit score will be worth thinking about if you no longer have income due to unemployment, or if you’ve had your wages reduced. You may find yourself unable to make your loan or other financing payments like you used to. If you start skipping payments, your credit score will likely decline.
Some of the steps you can take to protect your credit score during COVID-19 may sound familiar:
- Make your payments on time if you can
- Improve your credit usage percentage by reducing your debt if possible
- Only apply for financing that you (for consumer purposes) or your business (for commercial purposes)really needs
A Few Less-Conventional Steps
But here are some additional, though less traditional, steps you can take to protect your credit score during COVID-19:
- Refinance your consumer loans: If you’re struggling to pay your bills and you lock in a lower interest rate on your existing debts, you may be able to meet your obligations. Our sister company Quicken Loans® can help you refinance your mortgage today.
- Freeze your credit: After refinancing where you can, freeze your credit on your credit reports to prevent scam artists from opening any new accounts in your name.
- Apply for unemployment: If you’ve lost your job already or you lose it in the near future, apply for unemployment benefits as soon as possible to supplement your income. Income doesn’t directly impact your credit score, but missing payments probably will. The process of receiving unemployment can take time, so try to apply quickly.
- Communicate with your financing companies: Financing companies are not legally required to reach out, and they may not, even if they notice some changes on your end of the agreement. Be proactive and call the financing company. . Many financing companies are already taking many of these calls and will be prepared with options for you and your business.
The CARES Act Protects Credit Scores During COVID-19
This may come as a surprise, but the CARES Act that was passed in March actually has a section in it to help protect your credit score during COVID-19. This applies to consumer lenders who furnish credit information to credit reporting agencies. Here is how you use the provisions in the CARES Act if you’re unable to pay your bills:
- You inform your lender that your inability to make your payments is due to coronavirus income loss.
- You get an accommodation from your lender with an agreement in writing. The plan can include deferred or reduced payments.
- You verify that you’re currently in good standing with your lender.
- You make your payments going forward to fulfill your new agreement.
What you really want to avoid is ending up in “delinquent” status. That’s why we suggest you reach out to your lenders and open up a dialogue about your bills, if necessary. It’s an act of good faith that suggests you’re doing what you can to make things right, even when you can’t pay your bills. It turns out that open communication is great for credit score protection during COVID-19.
When you agree to new terms with your lenders, you’ll have the CARES Act to protect your credit score, so you can rest assured knowing that doing the right thing leads to the protection you may need right now.
A Balance Transfer During COVID-19 Could Help Your Credit Score
Another option to protect your credit score during COVID-19 is a balance transfer for either a personal or business credit card. If you have a growing credit card balance that you’re unable to repay right now, you may be able to move your debt to another card that has a lower interest rate. This way you can eliminate any extra interest payments on your credit card debt.
So rather than letting your credit card debt get out of control with high interest rates, you can stop your growing debt problem for now. It’s a temporary solution though, so you’ll have a little time to get back to where you need to be, but it won’t last forever. The debt still exists. Once you’re able to, consider setting the goal of eliminating credit card debt for good.
More Steps You Can Take
- Check your credit often. Making sure your credit report is accurate is more important than ever. If you check your report often, you can catch any fraudulent activity before it starts to have an impact on your credit report.
- Dispute anything inaccurate. Many credit reporting companies allow you to dispute anything you find that appears fraudulent. Protect your credit score during COVID-19 by reporting anything that looks inaccurate.
- Protect your identity. Identity theft and other scams are usually more prevalent during times of crisis, so it’s more important than usual to protect your identity. Create strong passwords, don’t overshare on social media, and don’t take the bait on scams.
- Seek financial assistance if you have to. You can work with a certified credit counselor if you need help managing your debt. There are nonprofit counselors who can help as well. Before you make any hasty decisions regarding any of your investments impacted by the U.S. markets, consult a financial expert or talk to your company’s 401(k) representative.
- Plan ahead. Tighten your budget to ensure you have the funds you need for important expenses. Budgets are helpful even during normal times, but to protect your credit score during COVID-19, you’ll want to be especially strict.
Protecting your credit score during COVID-19 is still just as important as it was 3 or 6 months ago. Protect yours by following these helpful suggestions. If you’re having trouble paying your bills, reach out to the financing companies to find out what kind of help they might be able to give you.
You can visit our sister company Rocket HQSM if you’re interested in learning more about this topic and if you’d like to have a great way to keep an eye on your credit report.
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