How to Protect Your Credit During a Hurricane
Natural disasters can also become financial disasters very quickly. When a hurricane is bearing down on you, going to work may not be possible. You may lose your home. Your employer may be out of business for a while. And local services may be offline and unavailable. While your top concern is obviously your safety, you’ll want to protect your credit as well.
Top financial concerns during natural disasters
Whether you’re facing a wildfire, flooding or a hurricane, you’ll likely have some concerns about the financial aftermath once you’ve gotten your household to safety.
- Access to money may be a problem
- Paying your bills on time may be impossible
- Your actions and decisions during and following a natural disaster can affect your credit rating in the future
You don’t want the effects of a hurricane or other disaster to impact you any more or any longer than necessary.
FICO scoring systems don’t care where you live
Living in a hurricane zone or area prone to flooding or fires does not impact your credit score. And having your home burn down or blow away won’t show up on your credit report. (Although it’s likely to find its way to other reports like CLUE for insurers.)
However, a natural disaster can become a credit disaster if you end up charging credit cards over-limit. Even if you have good reason, like needing to rent a hotel or being unable to work and missing income. If you open a flurry of new accounts or apply for a personal loan to get by, the activity is likely to drop your FICO score, at least temporarily.
Protect your credit with prevention
If you live in a disaster-prone area, you probably have an escape plan. In addition to a list of what to take when you evacuate, meeting places and escape routes, you need a financial plan. Keep the contact information for your creditors somewhere accessible, like your cell phone.
If you can pay your bills ahead of time before you evacuate, do it. One fewer thing to worry about when Hurricane Harpy hits your shore.
It’s smart to have an emergency savings account to get you through a disaster if it arises. If you lack sufficient savings, establish a credit account — either a card that you keep on ice for emergencies or a personal line of credit you can tap if necessary.
If you know you won’t be able to pay your bills on time, contact your creditors as soon as possible. Make sure that they understand what’s happening, and have them include you in their disaster program (many creditors have a set of procedures in place for events like hurricanes and you just need to let them know that you qualify).
For example, your mortgage lender may set up a temporary deferred payment plan. The company may, alternatively, give your account “forbearance” status. This means you don’t have to make payments for a certain period, or that you may be granted a reduced payment. There is no standard procedure, so the only way you’ll know what help is available is to contact each creditor.
How natural disaster forbearance affects your FICO
Lenders might indicate on your credit history that you received special payment arrangements because of a natural disaster when they report to the credit bureaus. That’s okay. The FICO scoring model does not consider include commentary in your score and does not consider such commentary derogatory.
Protect your credit: what NOT to do
When in the throes of a natural disaster, it can be tempting to forget your “real life” stuff and give in to the drama. You will have a lot on your plate. You may even be grieving the loss of a home and worried about your job or business. But this is not the time to be fiscally irresponsible.
Contact your creditors and make sure you understand the disaster policy of every one of them. Also, be prepared to prove that the policy applies to you and how you were affected by the event. Don’t just assume that your creditors will excuse a missing payment with no explanation.
If you can stay with family or friends, don’t run up expenses at a hotel. If you can cook, don’t eat out. Hunker down and save as much as possible. Because even if your credit rating doesn’t suffer after a hurricane, your finances will if you overspend when you have no money coming in. And eventually that strain will make its way onto your credit report.
Get your credit report
You’re entitled to a free copy of your credit report from each of the three major credit reporting agencies: Experian, TransUnion and Equifax. Take advantage of this opportunity and capture a snapshot of your credit before the post-disaster effects are reported. Protect your credit score by checking again later to make sure that accounts in forbearance were not reported as late or missing payments.
