Ways to Protect Your Credit Score During Economic Shifts

Even when the economy is strong, maintaining your credit score in good standing usually takes a certain amount of awareness, vigilance, and financial discipline. But when the economy stumbles, some of the factors that shape your score may be beyond your control. People’s incomes may drop, and it can take longer to repay what they’ve already borrowed – and in more challenging situations, some may let their credit card balances rise to help with their essential expenses. At the same time, lenders may reassess their risk and tighten lending standards. 

But even during economic shifts, there are many ways you can be proactive about protecting your credit score. I’ll explore some tips often offered by personal finance specialists for how to maintain your credit score.

Credit experts have long encouraged Americans to monitor their credit reports and credit scores,¹ but during economic shifts, you may want to be extra vigilant. And the major credit reporting agencies seem to agree credit monitoring is important: During the major economic downshift in early 2020, all three offered free weekly credit reports for a year instead of once a year, as required by law.² Knowing your score can help you set reasonable credit score goals, such as maintaining a good or excellent score, or improving from a fair score to a good one – for more, see “Credit Score Ranges: What is an Excellent, Good, or Poor Credit Score?” Monitoring can also help you catch errors that may hurt your credit score.² To correct errors, see “How to Dispute Your Credit Report at All 3 Bureaus.” 

And if your score does get dinged, some experts suggest that you consider adding a consumer statement to your report explaining your situation.^3,4 The Fair Credit Reporting Act allows 100 words for such comments,⁵ and the reporting agencies encourage people to take advantage.^3,4

Your payment history is the largest component of your credit score, so late payments hurt.⁶ And they typically hurt more the longer payments are delinquent.⁷ People who are one payment behind can avoid additional penalties to their credit score by catching up before becoming 60 or 90 days past due. A credit score simulator can help you see approximately how late payments – or catching up on your payments – could affect your credit score, and let you explore the impact of a variety of other credit scenarios.

If your payments are current, the next-biggest influence on your credit score is the total amount of your debt compared to your available credit limits – aka your credit utilization ratio.⁸ Experts say to use no more than 30% of your total limit at any time to maintain your credit in good standing.⁹ So it’s wise to pay down your debt to that level. And as an added benefit, by doing so, you’ll free up cash to use for basic expenses instead of interest charges.

If maintaining your credit score is the goal, it could save you money on interest to use available cash to pay bills rather than turning to your credit cards. This is why experts recommend that we save enough in an emergency fund to cover our expenses for about three to six months without incurring debt.¹⁰ Many people may hesitate to tap into their emergency savings, but unexpected economic shifts can be one reason you might need to tap into your savings to avoid adding to your debt.¹¹ This can also help you protect your credit score, because any credit card debt usually translates into a higher credit utilization ratio – which can hurt your score.⁸

Keeping your utilization low helps your credit score, but some experts say you’re better off charging small amounts to a credit card each month and paying your full balance because not using credit cards at all can backfire.^8,12 FICO, which provides most credit score models¹³, suggests that having a 0% credit utilization ratio might hurt a credit score in some cases.⁸ That’s because creditors are interested in how responsibly you manage your available credit, and you have to use credit to show how you manage it. In addition, some creditors may close inactive accounts, which can impact your credit utilization ratio and credit mix.¹⁴

When the economy hits a rough patch, financial institutions may extend offers to help people who find themselves in difficult situations, as they have in the past¹⁵ – especially if their credit reports show they’ve been responsible borrowers, historically. For example, my credit union once offered to waive two monthly credit card payments without reporting missed payments to the credit bureaus and without charging interest during that time. 

Other credit card companies might help by lowering your monthly payment, waiving late payment fees, or offering other accommodations.¹⁶ But in general, you have to ask them for help. How much you might save and for how long can vary. Creditors may consider your current financial situation, as well as your relationship with them. 

If you do need to seek some sort of relief, you can do so before your payment is late.¹⁷ If you reach an agreement, it pays to understand what implications it may have for your credit score, which may differ from one downturn to another.¹⁸ For example, the CARES Act of 2020 includes a provision requiring creditors to report accounts as current if the person had reached an agreement with their creditor before becoming delinquient.¹⁹ For more, read "Navigating a Changing Personal Debt Landscape."