Don’t sweat your credit score during COVID19
A good credit score is important but not a priority during financial crisis. If you are one of the millions of Canadians suffering financially from the coronavirus pandemic, you should not focus on how this will impact your credit score right now. However, you should protect it where possible.
If you have recently seen a reduction in income or are relying on government stimulus, your first and only priority should be making sure that all basic needs are met for you and your family.
This does not mean you should neglect your credit score or not consider how decisions will impact it, but it should not be the priority. What is more important than anything is ensuring your family is healthy and safe during this crisis.
Prioritize your payments
After any reduction in income, you will need to prioritize payments. In past blogs we have discussed prioritizing payments based on maintaining a good credit score. Not now, priority is health, food, and shelter.
It is important to understand what your priority payments are, it should be broken down to three areas:
1. Must pay – top priority payments – significant impact on the family if they are not paid.
2. Could soon become high priority if ignored.
3. Low priority payments – limited short-term impact if these aren’t paid.
Top priority debts include housing (rent and mortgages), health (medication) and food. These payments, if not paid immediately, would have significant impact on you and your family.
Debts that could become a high priority include car loans and leases, you are at risk of losing your vehicle that you need to earn income and get back to work. Also, in this category would be utilities, if these aren’t paid you run the risk of the service being cut off leaving the family without heat, water and energy. This category would include home, auto insurance and life insurance payments. If these payments are not made insurance will be cancelled putting the family at increased financial risk.
Low priority payments include credit card payments and other unsecured debts. While it is low priority compared to other payments, you should still call your card issuer or bank to see what deferral options are available.
Often, when you need to start prioritizing payments it may seem easier to make a $48 minimum payment on your credit card than to pay your $1,500 rent payment. Do not pay smaller debts if they are low priority. Stick to the priorities not the size of the payment. Paying even $48 towards $1500 rent is better than paying the credit card minimum payment.
Make arrangements – start with the high priority payments and look at what deferment plans are available, then move on to ‘could soon be a priority’ and then low priority payments. All lenders and even landlords are willing to help. Commit to calling them all. You will need to make sure you are fully aware of what government relief payments you are entitled to receive.
Where to find financial help
If you are overwhelmed and do not know where to begin, reach out to 4 Pillars. Chatting it through with a trusted resource can really help put things into perspective. It can ease the concern of missing certain payments and can come up with some ideas you may not have considered. Having a plan to deal with your debt in the future can also be a great stress reliever and help you start planning your financial future.
Deferment is better on your credit report than late payments
Just because some payments are low priority, it does not mean they should be completely ignored. All banks and credit card companies are offering financial assistance programs if your income has been impacted due to COVID19. Missing a payment doesn’t mean you will automatically be enrolled. This will be a reported as a missed payment. You will need to speak to each bank and credit card provider and register for the deferment plans available. Although credit score is not the priority, there is action you can take to protect it.
The bottom line
If you are facing financially crisis prioritizing payments will provide some structure and comfort that critical payments are being made. Your credit score is important in the long-term, but not during an emergency however it’s imperative your basic needs are met as priority. Credit can be rebuilt in the future with the right plan.
To find relief from debt, it is important to understand what your options are and if its beneficial to deal with your debt now or plan to deal with it in the future. Reach out to 4 Pillars and get some trusted advice, even just talking about it can help immensely.
