While the major concern regarding the current pandemic of Covid-19 is to stop its spread and save lives, we cannot, at the same time, ignore the fact that the virus will also affect the economy and more importantly, people’s personal finances.
So, while taking abundant precautions about maintaining health and hygiene standards, do also consider taking a few measures to prevent any possible harm to your credit score and financial health.
Following are certain tips, which will help reduce the negative impact of corona virus on your credit score and keep your overall financial health safe and secure.
Reduce lifestyle and luxury expenditure
One of the best ways to be prepared to handle an unprecedented emergency like Covid-19 is to cut down on your noncritical expenses. Assess where you can spend less. Eliminate any non-essential spending and drill down to exactly how much you would need for the essentials like food, shelter and transportation. This will help you weather this transitional period. You should also review your credit card usage and take all possible measures to avoid increasing debt as unpaid credit card payments can lead to debt and impact your credit score negatively.
Resort to contactless digital payments
As per the World Health Organisation, banknotes can be carriers of the virus and hence it is advisable to resort to contactless payments. The government has also asked banks to encourage customers to use digital payments methods such as debit cards, credit cards, mobile banking, etc. for transactions instead of paper money as a protection method against coronavirus.
Check your credit report on a regular basis
Though keeping a tab on your credit report should be a regular practice, now is the time to be extra vigilant about the same. In these uncertain times, you should be well aware about all activities happening around your finances and monitor your credit report for any unwanted or fraudulent activity. The idea is to deal with such issues at the earliest before it can cause damage to your credit score.
Manage debt obligations & keep Lenders updated
Paying your credit card bills and loan EMIs on time are the most important steps towards achieving and maintaining a good credit score. If you don’t make on-time payments, you may incur a late payment fee, a penalty interest rate and ultimately risk damage to your credit score. If you think due to the pandemic you may miss a payment, you should reach out to your lender as soon as possible and seek a way to work together to find a mutually feasible solution.
Avoid using credit card as an emergency loan
The pandemic may impact your monthly salary or income from your business. When compared to a credit card, a personal loan is a more viable option during such times. You are charged 18% GST on the credit card EMIs, the tenure on a credit card repayment ranges between 12-48 months while the same on personal loan can range up to 5 years and the interest rate charged on credit card is way higher in comparison to a personal loan.
Pay off pending debts
In times such as these, it is important that you don’t accumulate too many bad debts but instead repay them at the earliest. The economic uncertainty that may follow the pandemic may impact your credit repayment capacity, and thereby impacting credit score and credit history adversely. In order to avoid such a scenario as a first step, you need to prioritise the repayment of your loans. Make a list of all outstanding loans and then identify the ones that need to be tackled first.
Ideally, start by repaying the costliest loan. As by clearing off debts that charge higher interest rates first, the total interest outgo is reduced as unpaid debt with higher interest rates accumulate interest faster. You can also liquidate underperforming or non-performing investments to pay off pending debts and protect yourself from falling into a debt trap. Use any windfall gains such as income tax return, maturity proceeds from life insurance to repay pending credit dues.
Do maintain your credit scores. But most importantly, stay safe.