Survey: 33% of cardholders did something that could hurt their credit score during COVID-19
A recent survey from Bankrate showed how devastating the pandemic has been for Americans who have had to choose between paying bills and keeping food on the table.
A look at the Bankrate survey findings
According to survey findings, one-third of U.S. credit cardholders have made at least one credit misstep since the beginning of the coronavirus outbreak in March of 2020. For example:
- 17 percent of U.S. adults racked up additional debt
- 12 percent paid a bill late
- 8 percent carried a balance on their credit card with the goal of improving their credit score
- 6 percent did not pay a bill at all
- 3 percent canceled a credit card with the goal of improving their credit score
How to keep your credit score in good standing during a pandemic
While there are financial factors beyond your control during the pandemic, do have some control over your credit score, and working to preserve and improve your credit score is one of the most proactive things you can do in the current U.S. climate. Here are all the steps you should be taking now:
- Pay all your bills early or on time, even if you can only make minimum paymentsSince your payment history makes up 35 percent of your FICO credit score, even one late bill payment can cause your score to take an enormous hit. It’s crucial to make sure you pay every bill you have on or before your due date.
- Pay down debtThe second most important factor that makes up your FICO score is your credit utilization. Keeping your credit card utilization below 30 percent of your available credit will boost your score. If you have the means to pay down debt, you should try.
- Keep old credit card accounts openThe length of your credit history makes up another 15 percent of your FICO score, so make sure you don’t close old accounts thinking this will help you. If anything, you should keep all accounts you have in good standing open as long as possible.
- Save money while you canOpen a high-yield savings account and see if you can transfer any amount to this separate account on each payday, even if you can only afford to save $20 or $50. Any amount of emergency savings can help you keep up with bills and preserve your credit if your income drops or disappears.
- Reach out to your issuerAlso remember that you’re not alone in this struggle. Most prominent credit card issuers and lenders are still operating coronavirus relief programs, which can help you skip payments for a few months, qualify for a lower interest rate, or receive some other type of assistance.
What’s the difference between good credit and fair credit?
If you have a fair credit score, the distance between you and a good score could be as little as 1 point or as many as 90. It depends on whether your score lies on the low end or the high end of the fair credit spectrum (580-669 for FICO or 650-699 for VantageScore).
Regardless of the distance, being one level below good credit can make a huge difference when you apply for credit. You could miss out on access to great credit card offers on rewards, cash back and 0% interest cards. You could also end up paying higher interest when you borrow money.
Consider this hypothetical example involving two credit card applicants and the APR (Annual Percentage Rate) they might pay depending on their credit scores.
APR offerInterest charges on $10,000 balance paid off in 2 years at $500 per monthApplicant 1
Source: Bankrate Credit Card Payoff Calculator
In this example, just a 5-point difference in your FICO score could cost you $399 over two years.
The difference doesn’t end at credit card APR. Paying a higher interest rate on long-term loans (a mortgage, student loan or car loan) can mean the difference of thousands of dollars over time.
The same principles apply to the difference between good credit and excellent credit, which FICO defines as any score over 800. People with excellent credit scores generally have the best shot at premier credit cards and low interest rates on everything from car loans to mortgages.
How to get a good credit score
If you have fair credit or poor credit, it may be easier to improve your credit score than you think. Follow these tips to get your credit score closer to good:
Check your credit report
Get a copy of your credit report so that you can check for errors or inaccuracies that show up. Some credit report errors can be as simple as a misspelled name or incorrect address, while others may involve outdated information (loans that you’ve paid off still listed as open, and so on). A good rule of thumb for anybody is to check your credit report at least once a year.
Correct any errors on your credit report
Disputing errors on your credit report involves two steps:
- Contacting the credit bureau or bureaus in question (such as Experian, TransUnion or Equifax)
- Contacting the person, company or organization that provided the information you believe to be inaccurate to the credit bureau
Uncertain about what to say? Don’t worry. The Federal Trade Commission (FTC) has sample letters for contacting credit bureaus and information providers.
You’ll need to provide documentation to address the errors, such as balance statements, receipts, etc. Be sure to send copies of your documents, not the originals.
Pay on time across the board
Pay all your bills on time, if at all possible. In addition to your credit card, your financial behavior with any other loan also plays a part. If you miss a mortgage payment or car payment, you’ll also do damage to your credit score.
Watch your credit utilization
Don’t carry a balance above 30% of your credit limit on any of your cards, although you’ll want to keep it as close to 0% as possible. Your credit utilization — how much of your available credit you’re using — is one of the key components in determining your credit score. Using more than 30% of your available credit could drive your score down.
Let an older card age gracefully
If you have an old credit card, think about keeping it instead of closing it out. VantageScore points out that an account held for a long period of time says “experienced credit user” to potential lenders.
Keep the account active by making a small charge (your monthly cloud storage, for example) and paying in full and on time each month.
An example of using a credit card to help your credit score
If you already have good credit but want to keep improving your credit score, many of the sound financial habits that have served you well so far will continue to be useful. The way you use credit cards can also make a difference.
Consider the Wells Fargo Cash Wise Visa card, our good-credit pick for digital wallet users. Making payments on time benefits your credit score, but cards like the Cash Wise Visa also have the potential to help you reduce debts on other credit accounts.
The Cash Wise Visa offers a 0% introductory APR on qualifying balance transfers for 15 months (14.49%-24.99% variable APR thereafter). You could transfer a balance to the Cash Wise Visa from a different credit account and have 15 months to pay off the balance interest-free (before the offer expires and the card’s regular APR takes effect).
To potential lenders, having high credit utilization across multiple accounts could make you seem like a risky borrower. Consolidating debt with a balance transfer is a possible remedy that might help you take your credit score from good to excellent.