By Julie Jaggernath
During this time of wide-spread income uncertainty it can be hard to figure out how to deal with your finances. However, protecting your credit rating shouldn’t come before maintaining your health and overall well-being. You need to keep yourself strong as you weather this storm. And keeping strong and healthy will mean that you are ready to go back to work whenever that time comes.
Our primary financial focus in times of overwhelming uncertainty, like during Covid-19, should be on the health of our bank account, not our credit rating. We need to maintain our access to cash as long as possible. To shift your focus from credit to cash, it can help to check-in with your emotions before you tackle your finances.
Start by Acknowledging Your Emotions
We are creatures of habit and when our lives get turned upside-down it is completely normal to feel unsettled and nervous. Not knowing when we’ll get our next pay cheque is frightening. Not being able to de-stress in the ways we normally do can make a difficult situation even worse. Life as we know it during the coronavirus pandemic is essentially on pause and no one knows exactly when it will resume.
The uncertainty we’re suddenly faced with can cause fear and anxiety. Social distancing, working from home, and not being around those we like spending time with can cause a lot of sadness. Some feel a certain amount of anger and blame towards those who are perpetuating the spread of the virus. Many of us also feel overwhelming concern for those who are on the front lines taking care of all the sick and providing essential services.
Allow yourself time to process your feelings and avoid stifling your emotions. Be mindful of how you feel – then direct your energy towards making the best of the circumstances you’re faced with.
Finding Your New Normal
Normal is what you make it, and finding your new normal is a great way to reframe self-limiting emotions. Focus on what you have and can do rather than what’s missing or not possible to do. For example:
- Search online for fun ways to beat cabin fever with your kids.
- There’s no need to start home-schooling your children to try to replace formal education. Use this time to teach them the life skills you wish someone had taught you. Emergency budgeting might be a great lesson to start with; learn together and stick to what’s age appropriate.
- Find ways to support your older teens with their distance learning. Consider Skyping a tutor or encouraging your young adults to form a WhatsApp group for peer tutoring.
- Invest in yourself - learn a new skill that will boost your resume, take a course, learn a language, or get to the projects you never seemed to have time for.
- Spend time outside - whether you’re gardening, hiking, or walking the dog, the fresh air and exercise will boost your mood.
- Video chat and stay connected with seniors.
- Ask those with compromised immune systems what you can help them with.
Establish a daily routine for all members of your home, find ways to give everyone enough space, and embrace your new normal. For many people this will be a reset, helping them see what’s most important to them.
Keep Worries About Your Credit Rating in Perspective
It can be hard to keep your worries about your credit rating at bay because we’ve all learned how important a good rating is. However, worrying about your credit rating will cause needless stress during a time that’s already stressful enough. And stress will wreak havoc on your health.
Focus instead on your overall well-being. This will ultimately benefit your finances as well.
Let Your Credit Score Take Care of Itself
Most people don’t really know how a credit score works, that it often goes up and down, and that everything good and bad will drop off your credit report 6 - 7 years after the last activity date. However, you don’t need to know your score to make wise financial decisions during these uncertain times. Right now, making the best financial decisions you can to get yourself through this crisis is more important. Let your credit score take care of itself.
How Will Late or Partial Payments Impact Your Credit Score?
There’s no hiding the fact that late or partial payments will lower your credit score. But there’s no way to know exactly by how much. A lot depends on what your credit history looked like before the crisis hit, and why worry about a past you can’t change?
The important thing to know, however, is that late and even partial payments during this time show that you’re making an effort to live up to your obligations. This is better than not communicating your situation to your creditors and avoiding payments altogether, and the latter leaves creditors no choice but to refer your debt to a collection agency. Once that happens, you need to wait for the negative notation to drop off even if you end up repaying your debts once you resume working.
If you’re curious to see how your debts are currently reported to the credit bureaus, here’s how to get your own credit reports for free. While your report won’t tell you your credit score, your score is comprised of information on your credit report. If your report looks good, you score will look good too.
What Will Happen Later If Your Credit Score Drops Now?
A credit score is a ratio and lenders rely on it to determine how likely you are to repay any money they lend you. The highest score is 900. If your score is 720, it means that 720 out of 900 people are likely to repay the money they borrow. Once the worst of the coronavirus is over and Canada’s economy starts its road to recovery, the credit score ratio will be reflective of our new reality because so many people will have been forced to make late or partial payments, or skip payments altogether. Government incentives will encourage lenders to re-evaluate how they use credit scores in their lending decisions. This means that the definition of a good credit score in Canada will likely change because lenders themselves will want to recover the business they lost during the crisis.
Lenders aren’t the only ones who use your credit score to make a decision. Insurance agencies, prospective landlords, and employers do as well. However, seeing that you made some payments rather than none at all will work in your favour.
Contact Your Creditors to Minimize Stress and Credit Damage
An important part of protecting your health and well-being is to contact your creditors as soon as possible to advise them of your change in circumstances. They will be in a better position to be able to provide you with some relief if you contact them before you can’t make your payments, but even if you’ve already fallen behind, contact them regardless.
Canada’s major banks and credit unions have all said that they will review requests for assistance on a case-by-case basis. Mortgage payment deferrals, skipping payments, interest only payments, loan extensions, revised terms, or even reduced interest rates are all things your lenders can consider.
What they’re able to offer you will largely depend on what you need help with, your payment history, how soon you contact them, and your credit behaviour. Having just used your credit cards to shop for enough food and supplies to survive an apocalypse will definitely work against you. Your creditors expect you to help yourself if you’re also asking them for help.
As with any revised arrangement, make sure that you understand the terms and conditions. Deferring your mortgage or loan payments means that your lender is adding those skipped payments onto the end of your loan. In the case of a mortgage, that might mean that those skipped payments will incur interest for the next 25 years if your mortgage is still fairly new. If you don’t have any other viable options, then this might be a good arrangement for you, but it’s worth considering all of your options before agreeing to one that could cost you big in the long run.
Replace Panic with Planning to Protect Your Health and Well-being
The coronavirus is a crisis we have so little control over, which in and of itself can be terrifying. Our physical, psychological, and emotional health will play a role in our financial health, and vice versa. To take control of your own situation and to not let your panic and fear get the worst of you, focus on planning and preparation. That will lead to a sense of control, which will do wonders for your overall health and well-being. When it comes to surviving a financial crisis, there is no shame in asking for help, leaning on those you trust, and helping others as best you can. Manage through this time of uncertainty by focusing on getting up to date COVID-19 assistance information for all sources of income replacement, contacting your creditors for alternate payment arrangements, building an emergency budget, and knowing where to get additional help to ease your stress and worries.
Where to Get More Help with Your Debts and Money
Contact an accredited, Canadian, non-profit credit counselling organization for help with your money and debt. Over the phone, a Credit and Debt Counsellor can help you review your budget and give you guidance and information about all of your options to not only get through this difficult time, but to set yourself up to recover from it as soon as reasonably possible. Appointments are free, confidential, and don’t obligate you to anything further. You won’t be able to borrow your way out of this crisis. Avoid the temptation of cheap credit, but also avoid cashing in all of your savings. Depending on how long this crisis continues, you may need that safety net down the road. There is also every chance that interest rates will stay low until well after the coronavirus has passed to help individuals, families, and the economy recover more quickly.