How to Protect Your Credit After a Natural Disaster
From floods to hurricanes to earthquakes, natural disasters touch every aspect of our lives — including our finances. While you probably won’t be worrying about your credit score in these moments, it’s important to take action as early as possible to ensure that it’s protected. Should you have to rebuild your life after a natural disaster, the last thing you want to have to do is rebuild your credit, too.
Here are some quick tips to protect your credit after a natural disaster:
- Always keep an emergency fund and insurance policies in case of disaster.
- If you miss payments after a disaster, call your lenders to arrange an alternate plan.
- Consider adding a statement about your situation to your credit report.
- Always monitor your credit reports.
How a natural disaster can affect your credit
Natural disasters may cost you your physical belongings, but they also have a way of trickling down into every aspect of your financial life. If you’re forced to evacuate, you could end up spending your own money on hotels, food and transportation.
Once you return home, you’ll likely be faced with all kinds of expenses for which you hadn’t budgeted, from home and car repairs to the replacement of damaged items. You might also have less money coming in since it’s not uncommon for people to have to take time off work in the event of a disaster. In some cases, this can even lead to unemployment.
Without a substantial emergency fund, the unexpected costs and loss of income can set you back financially, making it easy to:
- Miss bill payments
- Fall short on rent or mortgage payments
- Overextend your credit cards
This can quickly become a problem for your credit. Payment history is the most important factor of your credit, making up 35% of your FICO® credit score, and missing just one payment on anything from your credit card bill to your mortgage to your car loan can significantly decrease your score. Missed payments also incur late fees, which can make it easier to miss several payments consecutively. Having payments reported as 60 or 90 days late on your credit report can quickly damage your score.
If you are able to pay your bills on time, you might still find yourself relying heavily on your credit cards to cover the cost of replacing your belongings. As you rack up credit card debt, your score could start to decrease, especially if you find yourself bumping up against your credit limits. While your score will recover when that debt is paid off, credit card debt that’s difficult to pay off in a timely manner can be damaging because it comes with relatively high interest rates.
How to protect your credit after a natural disaster
Setting up emergency funds and insurance policies beforehand can help prevent your finances from falling apart in the event of an emergency. But natural disasters are unpredictable and can quickly overwhelm even the most prepared person. Here are some steps for protecting your credit after a natural disaster:
Request a copy of your credit report and credit scores. This will help you keep track of your credit standing before and after the disaster, helping you improve your credit score if it takes a hit. Remember, your credit report and credit score are two different things, so you’ll need to request both. You’re legally entitled to one free credit report from each credit bureau every 12 months at AnnualCreditReport.com, and you can use a credit monitoring service to track your credit score. Many credit cards now offer free credit score tracking.
Contact your bank and lenders to set up an alternative payment plan. If you’re unable to pay your bills, call your lenders immediately before the payment is considered late. Lenders are often willing to work with you in times of hardship, and you might be able to set up a more manageable payment plan or defer payments until you’re back on your feet. There are even mortgage relief programs for homeowners affected by natural disasters. If you’re unable to live in your home for some time, call your utilities, cable and internet companies to have your service shut off while you’re not in the home.
Make a new budget that accounts for your current financial situation. Budgeting is the backbone of a healthy financial life, and it becomes even more crucial when you’re financially unstable. This will give you a better picture of where you’re at and prepare you to adjust your spending habits accordingly.
Consider adding a personal statement to your credit report. You can add a statement to your credit report explaining how you were affected by the disaster, particularly if your home or business is within a federally declared disaster area. However, there are drawbacks to doing this: Such statements remain on your credit report for two years, even if your credit history has since fully recovered. You might be letting lenders know about your past credit troubles after marks have already fallen off of your report.
File a complaint if needed. If you do want to add a statement to your credit report and your requests aren’t considered, you can file a complaint with the Consumer Financial Protection Bureau (CFPB). You should also file a complaint with the CFPB if you’re having trouble disputing errors that come up on your credit report.
Your credit score is important, and while you’re bound to have a lot on your mind after a natural disaster, don’t let it slip through the cracks. Being proactive with your finances will relieve a huge potential burden, freeing up your energy to focus on what really matters.