The economic fallout of COVID-19 has created significant financial stress among Canadians, as many have experienced job loss, reduced hours, sales slowdowns, or even the closure of company or family business. In response, the Government of Canada and the country’s financial institutions stepped in with support programs to help relieve some of the financial pressures.
Since the onset of the pandemic, the federal government processed over 27 million applications for the Canada Emergency Relief Benefit (CERB), paying out over $8 billion. Millions of Canadians also took advantage of deferral programs that were designed to help make ends meet and ease some anxiety. Equifax Canada says that over 3 million Canadians used some kind of deferral program, including 900,000 mortgage deferrals and 1.2 million deferred credit card payments.
As deferral options begin to expire, it’s natural to wonder if these relief programs will have a negative impact on your credit score.
Your Credit Score Will Not Be Affected
Credit scores are based on a number of factors and are calculated by one of two credit reporting agencies in Canada — Equifax and TransUnion. These credit bureaus have indicated that Canadians who opted to defer loan payments (including mortgages, credit cards, lines of credit and other loans) will not see an impact to their credit score.
It’s important to keep in mind, however, that any deferral arrangement made with your financial institution was for a particular period of time. Once that period ends, you’ll need to return to your regular payment schedule to avoid any negative impact to your score.
How to Protect Your Credit Score Going Forward
Your credit score plays a significant role in your ability to access credit — such as a mortgage to buy a home, a lease or loan for a car, a line of credit, or other general purpose loans. It may also affect your prospects for getting job or even a good deal on a cell phone plan. Maintaining a healthy score is therefore vital to not only your personal finances but also your personal lifestyle.
That’s why protecting your credit score is so important. Keep in mind, it’s easier to keep up a good score than to repair damage to bad credit. Here are a few ways to keep your score strong:
1. Make your payments on time. As mentioned above, once your deferral periods have expired, resuming your regular credit payment schedule(s) is an essential step for maintaining a healthy score.
If you continue to face financial challenges due to the COVID-19 pandemic, it may be a good idea to speak with a financial advisor before you miss a payment or experience financial stress that keeps you up at night. Together, you and your bank advisor can find ways to help meet your financial obligations without putting your future credit worthiness at risk. You don’t need to go through this alone.
For some quick ideas to meet your financial obligations, read 5 Steps to Smart Financial Decision-Making During Uncertain Times.
2. Check your credit score from time to time. Checking your credit score can help you better understand where you stand, and have some visibility into what lenders see. It also helps you spot any inaccurate or incomplete information. Your credit score is calculated from data on your credit reports — you’re entitled to a free copy of your credit report every twelve months from each of the nationwide credit bureaus by visiting www.annualcreditreport.com. You can also check your credit score for free anytime through RBC Online Banking.
3. Apply only for credit you need. One of the factors that influence your score is how frequently you apply for credit. If you need additional financial breathing room right now, it’s worth speaking with an advisor about the credit solutions that make the most sense for you — and don’t require multiple applications. Ultimately, you’ll want access to credit that is flexible, cost-effective and easy to manage.
Financial deferral programs offered critical reprieve for millions of Canadians who were worried about how they would cover their bills. If you took advantage of the relief available, be sure you know when deferral periods end as well as what and when your next payments are.
Remember, you don’t need to go through financial challenges alone. Advisors are here to answer any questions you might have and guide you through options that make sense for you.
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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.