created in partnership with wells fargo

Did The Pandemic Take A Toll On Your Credit Score? Here’s What You Need To Know.

Like with so much else that’s changed since pre-pandemic times (our social M.Os, our relationships, our senses of style) our financial situations may not snap back to their 2019 statuses the moment restrictions fully lift. In the wake of a year marked by tenuous incomes and altered spending habits, our bank statements hardly resemble those of previous years. And naturally, when our finances take a turn, so do our credit scores. 
In a Pew study from this past April, 51% of non-retired adults said that pandemic-induced hardships were making it more difficult to reach their financial goals — and credit health is a big part of that. The higher our credit scores, the more likely we are to receive loans for academic pursuits, small business expenditures, and mortgages. Which begs the question, has this past year robbed many of us of our down-the-line financial goals? 
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Fortunately, according to Wells Fargo’s head of branded cards and marketing Krista Phillips, all hope is not lost. As she sees it, no matter how our financial situations shifted, there are still attainable ways to find a balance between making the most of our everyday purchases and planning for the future. Ahead, we tapped Phillips to break down our most pressing questions — like, why do credit scores matter anyway? And what can we do to improve them when we’ve got BIG financial goals on the horizon? 
Let’s start at square one. What exactly is a credit score and why is it important to monitor?
“Your credit score is a number that summarizes your credit risk to lenders like me. Simply put, it’s a way of measuring the likelihood that you’ll pay your loans back on time. It helps us evaluate your credit risk as a consumer. The number, itself, can really range from 300 to 850, with 850 being the highest, based on assessments of your past credit card bills: The more you spend, the more you pay back in a timely manner, the higher your score will go. So if you’ve got an 850, we’ll potentially be prepared to offer you a fairly maximum amount, knowing you’ll pay it back on time.”
“That said, while credit scores are important, we also use other metrics when determining your credit worthiness, such as income or existing debt obligations. And that’s how we determine how much we're able to lend to you. So, it’s always really helpful to think about the big picture and not just that one score when it comes to financial goal-setting.”
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For those who are still struggling financially in the wake of the pandemic, should credit score be a major concern? And if so, how can they go about getting that number back up? 
“One of the best things you can do to raise your credit score is to make your payments in a timely fashion. If you know you’re not in a position to pay in full every month, be sure you’re paying that minimum consistently. Lenders like seeing that you’re keeping track of your payments and staying on top of them reliably, even at the minimum rate.
“It’s easy to get overwhelmed and fall behind on credit card payments, but if you take a holistic look at your finances in general, and stay mentally on top of what you’re spending and earning in any given month, staying ahead of those minimums will feel easier than it sounds. That’s the best advice I can give anybody: Know what’s happening in your own bank account, and always pay on time.”
How can folks undergoing financial hardships right now use their credit card benefits to their advantage? 
For starters, it’s all about doing your research. You should find a card that rewards you for the sorts of things you spend the most money on. Then, you should make sure you know how to use those rewards. 
“For instance, at Wells Fargo, we launched a new credit card in July. In the planning stages, we took a look at our consumers and what was happening with their spending patterns during the pandemic. Unsurprisingly, we found they were traveling less and dining out less, but at the same time, they were spending more on things like outdoor recreation, hobbies, cooking supplies, and so on. So, we decided that we were going to launch a new credit card that was just a straight-up 2% cash rewards card. The reason I mention that now is because a lot of credit cards have earning categories in different passion points, like travel or dining. And we knew that launching with a cash-back card with no cap and no category limitations would help our customers earn money no matter how their spending was changing, or what ‘new normal’ they were adjusting to. So, as far as advice goes, I’d definitely say it’s about understanding how you spend, and being careful to choose a card accordingly. Take a look at your wallet: Are the cards you have working hard for you? If not, should you be reconsidering?”
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It sounds like a regular audit of our wallets is definitely an important habit. Can you speak to that?
“We love the term ‘wallet edit.’ Whether you have 10 credit cards or one, it’s important to keep a watchful eye on your wallet and make sure all your products across the board are aligned with your own spending habits. It’s one of the biggest favors you can do yourself — and one of the best ways you can earn money back simply for investing in goods or activities you love. Plus, when it comes to keeping a firm gauge on what you’re spending and what you’re earning, having less cards that do more for you will make it far easier to stay organized.”
The stress of the last year has left a lot of consumers with newfound financial anxieties. What advice would you give folks who are feeling apprehensive about returning to their normal spending habits when quarantine restrictions lift?
“I think one way to build financial confidence is to take control of your own financial situation — and that control comes from creating a budget and developing an in-depth understanding of your income, your expenses, your pipe dreams, and your lifestyle. That sort of comprehensive knowledge of your own financial situation will help you keep tabs on whether or not you can go out and celebrate and enjoy yourself, or spring for that expensive latte. It helps you eliminate the question marks — which is where much of our financial anxiety comes from.”
With that in mind, are there ways in which consumers typically miss out on using their credit cards to their fullest potential?  
“I would absolutely encourage any consumer to push themselves to gain a better understanding of their financial products and services. For instance, if there are terms that are confusing or vague listed under your credit card benefits, it’s worth calling your bank or stopping by a physical location to investigate. Credit cards are designed to suit our lifestyles, so you want one that’s really doing its part to support you. Credit card companies aren’t just issuing out pieces of plastic — they’re thinking a lot about what consumers need, and how they spend, and if you have questions, these banks have plenty of people who would love to talk through them with you.” 
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