With the economy in chaos and businesses in panic over whether they can make their payrolls, the global financial markets have no choice but to respond to the changes brought on by the coronavirus pandemic.
The aftermath of those changes are hitting close to home for consumers turning to the much-needed security of a personal loan or credit card. However, lenders and creditors are clamping down on who receives an approval, and their stricter guidelines mean a lot more people are being turned away.
In these difficult times, a new loan or credit card might be hard to come by, emphasizing the role good credit plays between hearing “yes” instead of “I’m sorry”during the approval process.
One of the reasons lenders are tightening their restrictions on loans is that unemployment figures are rising. March 2020 unemployment rate was 4.4%, up from February’s 3.5% rate.
But it’s not going to stay in the single digits for long.
Federal Reserve experts have predicted the unemployment rate will hit 30% to 32% this year, a startling figure that’s even worse than the 24.9% unemployment the U.S. saw during the Great Recession.
To that end, millions of workers have filed unemployment claims in the month of March, pushing the limits of available benefits to the brink.
With so many people out of work, credit cards and personal loans are often a way to stay afloat. But this reality has prompted lenders to take an ultraconservative approach in determining who gets approval to mitigate potential loan defaults.
Will Lenders Throw a Life Raft?
For example, Wall Street Journal reports that lenders such as Bank of America, JP Morgan Chase, and Capital One Financial are revising some of their lending criteria. The expected outcome of those changes will be reduced spending limits on credit cards and fewer approvals for consumers with lower credit scores.
While credit scores have always been a factor in the approval process, their importance will now be highlighted, and those who may have slid by before will no longer make the cut.
Ask for Assistance
A new loan or credit card might not be an option for those who have lost their job or expect to be laid off soon, but it’s absolutely possible that your existing lenders and creditors will be flexible with payments and due dates.
As we previously reported, many mortgage lenders are offering reduced or deferred payments, while several utility providers, credit card companies and student loan issuers are allowing missed payments or grace periods.
But fair warning: To participate, you can’t just stop paying your bills and hope all will be forgiven. You’ll need to be proactive, and contact the lender, creditor or provider and ask for assistance.
Because credit scores are such an important factor in determining future loan approvals, debt limits and interest rates, you should do everything you can to pay your bills, or make payment arrangements with the lender or creditor before you get behind.
Losing your job because of the pandemic won’t hurt your credit scores, but defaulting on your debt will. Talk to the lender or creditor to work out a way to protect your credit scores today. Doing so will ensure you have staying power for the years to come.