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How to recession-proof your credit score

March 10, 2021
7 min read
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Editor's Note

This post has been updated with additional information. 

As we all take precautionary measures nowadays to protect ourselves from getting sick -- from social distancing and wearing masks to washing our hands frequently -- there are also steps you should be taking to protect your finances.

The coronavirus pandemic pushed the global economy into a recession in 2020 — defined as a period of falling economic activity signaled by increased unemployment and a stock market and housing market decline. While every recession is different in its nature and time frame, there are a few patterns you should pay attention to in order to help you protect yourself in the inevitable aftermath.

Today, we'll talk about things you can do now to protect your credit in the long term.

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Keep your accounts active

The easiest thing you can do to protect your credit is to make sure that you are keeping your credit card accounts active — especially your no-annual-fee cards. The general best practice is to use all of your cards at least a few times a year, but it's even more important now to demonstrate to issuers that you are utilizing your full lineup of cards to prevent them from closing any of your accounts.

"Unused cards that don't hold an annual fee are particularly susceptible to being closed as issuers mitigate their risk," says Greg McBride, SVP and Chief Financial Analyst at Bankrate.

During a recession, banks and credit card companies will look for any and every way possible to mitigate risks and prevent delinquencies. How does that translate to them shutting down unused accounts?

"From the issuer's perspective, if the card has been sitting in a drawer unused for the last year, what's the chance the consumer is going to suddenly start using that unless they are in a bind?" said McBride. "That's the risk issuers are trying to mitigate."

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Related: Why you should use your rarely used cards — especially now

(Photo by filadendron/Getty Images)
Using your cards will limit your chances of getting accounts closed and credit limits reduced — which could impact your credit score. (Photo by filadendron/Getty Images)

While issuers encourage spending, they don't want people to spend more than they will be able to pay off. So dust off those no-annual-fee cards and use them on a few small purchases. That way, those accounts are more likely to stay open and your credit limits are more likely to stay high — both of which help you maintain a high credit score.

Related reading: How credit scores work

Pay off debt

It's important to eliminate as much debt as possible in case of further financial downturn. If you can pay off balances now, that gives you additional wiggle room in your budget later because you'll have one less payment to worry about. You should prioritize debt with higher interest rates first (such as credit cards), then look at auto loans, paying down mortgages and personal loans. It's important to note that paying off non-revolving credit (such as a mortgage) won't help your credit score, and lower interest rates on that type of account may not make it worth prioritizing if you aren't already close to it being paid off.

But reducing your balance across cards specifically does two things. First, less debt means a higher credit score because your credit utilization ratio goes down (which is a major factor in determining your score). Second, paying down debt now means more money in your budget down the road in case you need to further tighten your budget.

Related: How to check your credit score for absolutely free

Be mindful of financial reviews

Something we saw come out of the 2008 recession was an increased focus on financial reviews from issuers (particularly American Express).

Tensed multi-ethnic couple reading bills at home. (Photo by Portra/Getty)
Be mindful of financial reviews, which can suspend your ability to use cards or even shut down your accounts. (Photo by Portra/Getty)

Financial reviews can be triggered by several things, including cycling your credit and rapidly increasing your spending habits. But sometimes even completely normal credit behavior can lead to an issuer flagging your account(s). The exact process and pattern of behaviors that trigger a review differ from issuer to issuer.

Generally, American Express will notify you that your ability to charge has been suspended and provide a way for you to reach out for more information. However, if Chase suspects you of risky behavior, it may shut down all of your accounts and only notify you retroactively.

In both scenarios, there are steps you can take to help get your accounts back in good standing, but those processes are an added stress. With reviews likely becoming more frequent during a recession, it's important to be mindful of your credit behavior.

Related: Understanding the Amex financial review process

Apply for cards you want now

According to Bankrate's McBride, issuers in a recession get much pickier about who they give credit to and how much they allocate. They want to do business with high-quality borrowers with minimal risk of default. While those with credit scores of 700 and up are likely to be OK, those hovering below that may have a little more trouble getting approved for new cards.

We saw issuers take steps to increase score requirements for new lines of credit — JPMorgan Chase implemented stricter requirements for borrowing when it comes to mortgages back in 2020 and we saw issuers such as Capital One and Chase tighten underwriting policies.

(Photo by Wyatt Smith / The Points Guy)
Issuers will start being stricter about credit card approvals. If you have your eye on a card, applying now could be the best option. (Photo by Wyatt Smith/The Points Guy)

The good news here is that credit card issuers have started switching focus back to new customer acquisition in 2021. So keep an eye out for limited-time sign-up bonuses across cards on your wishlist. If you had a hard time getting approved for a specific card in 2020, this may be your year to score that approval.

Related: Should I apply for cards right now?

Bottom line

You should always continue practicing responsible credit card habits — pay off your bills in full each month, never miss a payment, avoid using a credit card as an emergency fund and stay on top of your credit score and reports. Remaining a trustworthy borrower will help you protect your credit long-term, regardless of whether we are in a recession or an economic boom.

But these additional tips are ways you can ensure your credit score and overall credit health remain recession-proof as we continue to ride out the effects of the coronavirus pandemic.

Featured image by Shutterstock
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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  • Earn 10,000 bonus points after spending $1,000 on eligible purchases in the first 90 days and redeem for a $100 statement credit, gift cards, or travel
  • Earn 10x points on eligible hotels and car rentals booked through the Credit One Bank travel site
  • Earn 5x points on eligible travel, dining, and gas
  • Earn 1x points on all other purchases
  • Redeem your reward points for statement credits, gift cards, merchandise, flights, hotels, and more
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Apply for Credit One Bank Wander® Card
at Credit One Bank's secure site
Terms & restrictions apply. See rates & fees
Best for earning alternative rewards for travel purchases
TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
3 / 5
Go to review

Rewards Rate

10XEarn 10x points on eligible hotels and car rentals booked through the Credit One Bank travel partner site
5XEarn 5x points on eligible travel, dining, and gas
1XEarn 1x points on all other purchases
  • Intro Offer
    Earn 10,000 bonus points after spending $1,000 on eligible purchases in the first 90 days and redeem for a $100 statement credit, gift cards, or travel

    Earn 10,000 Bonus Points
  • Annual Fee

    $95
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    Fair/Good

Why We Chose It

The revamped Wander Card from Credit One Bank earns cardmembers up to 10 points per dollar spent on eligible travel purchases. With no foreign transaction fees, the card is also great for international travel. However, points earned from this card can only be used at a fixed value, so it may not be the best option for those striving to get maximum value from their rewards.

Pros

  • This card has no foreign transaction fees and earns up to 10 points per dollar on travel purchases through the Credit One Bank travel partner site.

Cons

  • While cardholders can earn a significant amount of points on travel purchases, there isn't any way to redeem points from the Wander Card for maximum value (beyond 1 cent per point).
  • Earn 10,000 bonus points after spending $1,000 on eligible purchases in the first 90 days and redeem for a $100 statement credit, gift cards, or travel
  • Earn 10x points on eligible hotels and car rentals booked through the Credit One Bank travel site
  • Earn 5x points on eligible travel, dining, and gas
  • Earn 1x points on all other purchases
  • Redeem your reward points for statement credits, gift cards, merchandise, flights, hotels, and more
  • With $0 Fraud Liability, you won’t be responsible for unauthorized charges
  • Free Online Credit Score and Credit Report summary, terms apply
  • If you are a Covered Borrower under the Military Lending Act, you may get a different offer
  • See Rates & Fees