COVID-19 has had a serious impact on millions of Americans’ finances. If you’ve recently experienced a financial setback, your credit score may take a hit. That can have a significant impact on your ability to borrow money — whether it’s for a mortgage, a personal loan or a new credit card. Here's how to maintain good credit during a financial setback.

CONTACT YOUR LENDERS

Creditors know that some people are having a tough time paying their bills right now, and many are offering hardship relief, such as credit line increases and better terms or interest rates. If you know you need to miss a payment or can only make a partial one, let your lenders know. Just make sure to do so before the payment is due. Be sure to get all the details of the agreement in writing in case you need to reference them in the future.

LOOK INTO MORTGAGE AND STUDENT LOAN FORGIVENESS

Two bills that can have a serious impact on your credit are your mortgage and student loans. If you’re having trouble paying your mortgage in full, ask your servicer about mortgage forbearance. This allows you to pay at a lower rate or even temporarily skip payments. However, it’s important that you fully understand the financial implications and repayment terms before opting in. You’ll want to find out if you’ll owe a lump sum once the grace period ends or if your monthly payments will be higher once your repayment period starts.

If you have federal student loans, they’ve likely already been put on administrative forbearance, meaning all loan payments have been suspended and interest rates have been set to 0 percent until Sept. 30, 2020. As a responsible borrower, however, you should still check to ensure that your loan is covered. If you have private loans, work with your lender to see what your options are.

WATCH YOUR CREDIT UTILIZATION

Your credit score is made up of multiple factors, and a key part is your credit utilization. This is how much you use of your available credit, and experts recommend you keep your balance below 30 percent. If you find you’re approaching your credit limit, you may be better off spreading your bills over more than one card, or asking your credit card issuer for a credit limit increase.

CONSIDER OPENING A NEW CARD

While it might sound counterintuitive, if you have a large balance on a high-interest card, or if your balance is more than 30 percent of your credit limit, you may want to consider transferring your balance to a low- or no-interest credit card. Many cards offer a 0 percent introductory annual percentage rate, which can be helpful if you’re trying to pay down debt. Just make sure you understand the terms, such as when the introductory rate period ends and what the new interest rate will be. You’ll also want to know what can cause the introductory rate to jump prematurely, such as missing minimum payments during the introductory period. If you decide to open a new card and transfer the balance, leave the previous account open, as part of your credit score is based on the longevity of your accounts.

PUT YOUR BILLS ON AUTOMATIC PAYMENT

When you're in the middle of a stressful situation, it can be hard to remember when various bills are due. But even one missed payment can have a sizeable effect on your credit score — some scoring models account on-time payments for 35 percent of your total score. Automating payments means you’ll avoid missing one inadvertently.

REMEMBER THAT INQUIRIES CAN AFFECT YOUR SCORE

Remember that any financial moves you may make during this time, such as refinancing your mortgage, applying for a personal loan or asking for additional credit, will require potential lenders to check your credit. These types of inquiries are known as “hard pulls” and can have a slightly negative effect on your credit score. They’ll also remain on your credit report for about two years. While credit inquiries are unavoidable, make sure you’re truly interested before applying.

KEEP AN EYE ON YOUR SCORE

While it’s always wise to keep regular tabs on your credit score, it’s a particularly sage move if you’ve experienced a financial setback. If you see a drop in your score, it could signal a missed payment or indicate that the agreements you worked out with your lenders are not being honored. Set regular calendar reminders to check your score so you can start improving it sooner rather than later.

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