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Even in a financial crisis, credit scoring still works the same as it always has. But managing your credit may look a little different now as the coronavirus pandemic leads to widespread financial upheaval.
As money gets tighter, especially if you can’t pay every bill in full, you’ll need to be strategic — and perhaps accept a lower score temporarily. Understanding how credit works can help you minimize damage and position yourself for quicker recovery.
If you have an emergency fund, should you tap it before using credit? “I think there are two schools of thought here,” certified financial planner Lynn Ballou of EP Wealth Advisors in Orinda, California, said in an email. “If not a global pandemic, then what in the blazes is an emergency fund for anyway?”
On the other hand, Bruce McClary, vice president for communications at the National Foundation for Credit Counseling, suggests proactively cutting costs first. Your landlord and utility companies, for instance, may be willing to make temporary arrangements, he says. “Have these conversations before you spend a dollar of your emergency fund.”
About 3 in 10 of us (30% of Americans) have tapped emergency funds due to the economic effects of the coronavirus pandemic, according to a NerdWallet survey conducted online by The Harris Poll from April 8-10. But almost 1 in 5 Americans (18%) had no emergency fund to tap.
Even while you’re putting more on cards or paying minimums, you may still have some latitude to keep credit balances low relative to limits:
If you’re using credit cards to stay afloat, know how the cards operate, McClary advises. For example, taking out a cash advance will cost you far more in interest than a purchase of the same amount. You can find out by calling the customer service line or looking up the customer agreement online.
Also, don’t assume that the terms you have now are the best you can get. Rather than simply checking APRs, Ballou recommends reaching out to your current issuers to see if they will give you lower rates or lower minimum payments or eliminate fees. You might be able to move some debt from higher-interest to lower-interest cards, she said, adding that telling an issuer you are considering transferring your balance to a competitor can be a good negotiating tool.
If you apply for a credit card hardship program, it’s important to and decide whether you want to apply for help from your card issuer now if you might need it later.
And if you have autopay in place for bills, adjust the payments or turn them off to avoid paying more than is required or overdrawing your account.
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from April 8-10, 2020, among 2,042 U.S. adults ages 18 and older. This online survey is not based on a probability sample, and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Madison Gouveia at .