If last year wreaked havoc on your all-important three-digit credit score, here are six options for turning things around.

By Margaret Littman
April 02, 2021

When we were searching for toilet paper and building makeshift classrooms in the living room a year ago while trying to work remotely, few of us were busy worrying, This pandemic is really going to tank my credit score.

But that score, which basically is a report card of how we pay our bills, decreased for many of us in 2020. Things that we availed ourselves of to get through the (hopefully temporary) tough times—paying only the minimum on our credit card bill or skipping a payment altogether, or applying for EIDL and SBA loans—may have resulted in hard inquiries on our credit reports, thus lowering our credit scores. (Eligibility for the PPP loans was not tied to a credit inquiry, and did not have that same effect for small business owners who went that route.) Such credit checks can lower a score by 25 points.

In other cases, we charged more on our cards—whether it was for a ring light for Zoom calls, groceries, an extra chair and desk for an at-home office, or even noise-canceling headphones—as we waited for unemployment or stimulus funds. Those actions affected our debt-to-credit ratio and therefore our credit scores.

A survey of 530 small business workers conducted by Gusto found that employees took on an average of $3,351 in new debt as a result of the pandemic. Nearly two times as many workers started to carry balance on credit cards than had in the past, and two-and-a-half times more delayed rent, utility, and loan payments.

Now that vaccines are being rolled out and in-person school doors are opening, the worst may be behind us. But for those of us who suffered from credit score decline, that lower number can affect the future, including homeowner or rental insurance availability and rates, access to car loans, and even nabbing new jobs—all things we may need to bounce back. The annual Discover Credit Health survey, conducted in November 2020, found 77 percent of Gen Z respondents and 82 percent of millennial respondents are actively trying to build or improve their credit score.

If you find yourself in the position where you want your post-pandemic credit score to go up, here are seven suggestions for improving your situation.

Check your credit report.

Once a year, you can obtain a free report from each of the three credit bureaus: Equifax, Experian, and TransUnion. Many credit card companies make this available to account holders, too. Without knowing what your baseline score is, you can't work to improve it. Credit scores range from 300 to 850. In general, a score between 300-579 is considered poor; 580-669 fair; 670-739 good; 740-799 very good; and 800-850 excellent. 

Fix mistakes.

Shazia Virji, vice-president of credit marketplace at Credit Sesame, says that as many as one in five credit reports have errors in them! So before you make other changes, make sure your report is correct. "Get those resolved right away," she says. That's the basics like your name and address, but also, are there accounts listed that aren't yours? Late payments that don't jive? Keep proof of payments so you can provide evidence.

Pay on time.

Lots of factors affect your score, such as your debt-to-credit ratio, but paying your bills on time is essential. "One missed payment could have detrimental effects. That could drop by 50 points," Virji says. Sign up for Autopay or ask your lender if you can change your due date to a day of the month that corresponds to when you get paid. It is better to pay a $50 minimum each month on time than to pay $500 one month and be late the next, says Paul Sundin, a CPA with Emparion in Arizona.

Lower your credit utilization ratio.

If you have extra cash, from that third stimulus check or because you are no longer on furlough, put it toward paying off what you owe. Most lenders like to see a debt-to-credit ratio of less than 30 percent. The amount that action will raise your credit score depends on your situation, Virji says. In general, if you have poor credit, paying down debt may have a big impact on your score. It may increase by 20 points or more.

If you have a higher score, you may still want to pay off debt, of course, but that credit score increase may be closer to 9 points. For those with poorer credit, a 20-point jump can be "life-changing," Virji adds. Note that medical debt isn't typically counted in your debt-to-credit ratio, and won't affect your credit as long as you are paying in a timely fashion. If you are in arrears and that debt has gone to a collection agency, then it might.

Broaden your reach.

Tools such as the Perch Credit app and Experian Boost allow you to use recurring expenses—like your Netflix charges or electric bill—to show your ability to pay off debt in a timely fashion.

Don't close accounts!

It may be tempting to close credit cards you don't use. But the length of time you have had credit is another factor in your score, so the experts recommend keeping a card and using it occasionally (maybe charge your monthly Disney+ usage) and pay it off on time in full each month. If you have an annual fee that is onerous, you may want to cancel anyway, but be prepared for the temporary hit on your score.

Explain yourself.

If you had a dip due to the pandemic—because you were out of work or ill due to coronavirus—you have the opportunity to explain. For example, with Equifax, you are allowed to add a 100-word (up to 200 words in Maine) addendum to your report, says Jeffrey Wood, CPA and partner at Lift Financial in Utah. Note the facts concisely and clearly. You don't need to describe what the pandemic was, only what your temporary circumstances were.