How to Protect Your Credit During a Recession

couple looking at finances together

At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our Editorial Policy.

If you're worried a recession could impact your credit score, your fear isn't completely unfounded. While credit scores are not directly affected by recessions, if your financial situation changes due to a downturn in the economy, your scores could change as well.

Because credit scores are based on how you manage your debt, financial conditions that cause you to fall behind on payments or rely too heavily on new debt can have an impact. Whether or not your income is affected during a recession, it's still important to take action to protect your credit score in uncertain economic periods. Here are six ways to protect your credit during a recession.

1. Understand How a Recession Could Impact Your Credit

A credit score is an indicator of how you manage your financial obligations. And when things in your financial life change—for better or for worse—your credit score could fluctuate.

Though recessions impact many aspects of the economy, one of the greatest risks consumers face is reduced income or unemployment. Losing your income could mean not being able to pay your monthly expenses—including your debt payments. Because payment history is the most important factor in calculating credit scores, if you fall behind on debt payments, your credit will likely suffer.

A loss of income may also force you to take on more debt, which can hurt credit scores. Running up credit card balances to pay for expenses can increase your credit utilization ratio, which is the percentage of available credit you're using. Credit utilization is the second most important aspect of your credit scores.

It's best to keep your utilization ratio for each of your credit cards, and overall, under 30% to avoid hurting your credit scores—but the lower your utilization, the better.

2. Monitor Your Credit

Regularly monitoring your credit is crucial to knowing if your scores drop and why. By reviewing your credit reports and credit scores often, you'll see how your credit is responding to changes in your financial life, if at all. This can help you understand what actions you may need to take, adjusting your finances where possible to move your credit to a better place.

Checking your credit can also alert you to any inaccurate information in your reports. Mistakes, though rare, can happen when information is reported to the credit bureaus, and inaccuracies in your credit report could be pulling your credit scores down. If you find something in your report that you believe shouldn't be there, you can file a dispute with the credit bureau that maintains the report where the information appears. Keep in mind that accurate information cannot be removed from your credit reports.

To keep a closer eye on your credit reports and scores, consider using Experian's free credit monitoring tool for regular insight and alerts that tell you when something in your credit report has changed.

3. Pay Off Existing Debt

If you're fearful a recession could take a toll on your credit, try to pay down your existing debt sooner rather than later. Here's how:

  • Cut back spending. Cutting back on clothes purchases, making more meals at home instead of ordering takeout or canceling subscriptions you no longer use, for instance, can put extra cash in your pocket. Take any extra money you save and apply it toward your monthly debt balances.
  • Use the debt avalanche method. Make minimum payments on all your credit cards except the one with the highest interest rate—then put as much as your budget will allow toward paying off that highest-interest card. Once it is paid off, use the same strategy with the card that has the next-highest interest rate and so on until all your cards are paid off.
  • Use the debt snowball method. You use the same general approach here as with the debt avalanche method, except you put the most each month toward the card with the lowest balance. While you'll typically save more money using the debt avalanche approach, if quick wins and seeing accounts paid off is important to you, this could be a good strategy.
  • Consider a side hustle. Not only could a side hustle help you pay off debt faster, but having multiple streams of income can help you feel more secure in times of economic uncertainty. You could find a traditional part-time job or explore gig work such as driving for a ride-hailing service or pet sitting. You could also consider freelancing in a field you already have experience in.
  • Get a balance transfer credit card. Managed the right way, a balance transfer credit card can help you save money and pay off debt faster. Balance transfer cards often offer no-interest introductory periods during which you can transfer balances from other cards and pay them off without paying interest. Keep in mind that most balance transfer cards typically require good to excellent credit for approval and charge a 3% to 5% fee on transfers.

4. Build an Emergency Fund

If you lose part or all of your income during a recession, you'll want to have a backup fund to tide you over until you find a new job. Emergency funds are dedicated savings accounts used to cover unexpected expenses. They can protect your credit by providing needed cash to pay your bills or help you avoid maxing out your credit cards.

Experts recommend having at least three to six months' worth of living expenses in an emergency fund, but if you can save more, even better.

You can start to build an emergency fund by setting aside however much you can afford each month. Even if you can only afford to save $100 per month, that's better than not having a fund at all. To ensure you save every month, set up automatic deposits so money is automatically transferred from your checking account to your emergency fund account.

Not sure where to keep your emergency fund? You could open a savings account at the bank where you have a checking account, look for a high-yield savings account, or consider a money market account, certificate of deposit and other options.

5. Contact Your Lenders

Because payment history is the most important aspect of your credit score, you should do everything you can to make sure you don't miss any debt payments. If you know you won't be able to afford your monthly bill, reach out to your creditors as early as possible to see if they have any relief options available.

During an economic crisis, some lenders may offer options specifically designed for people struggling to pay bills, such as payment deferment, a lower interest rate, an adjusted repayment schedule or other help. This relief could bridge the gap until you're able to resume normal repayment. Taking advantage of these options first is your best bet when you know you can't pay on time and want to avoid getting a derogatory mark for missing a payment.

6. Stick to a Budget

Though it's always a good idea to maintain a responsible budget, this strategy is increasingly important during an economic downturn. Budgets help you allocate your income, portioning your funds in a way to help you save and spend efficiently.

When a recession hits, having a budget in place will help you quickly adjust your spending should your income be reduced. Use your budget to figure out which expenditures you can live without and which you absolutely need. Revising your budget to cut out non-essential purchases and limit your spending to essentials can help you get through a difficult financial period.

The Bottom Line

Even if your income isn't affected during a recession, taking steps to pay off debt, build a healthy emergency fund and pay off debt can help you boost your financial resilience and ensure that you're living within your means. By checking these boxes when you aren't financially overextended, you'll be in better shape should the economy begin to suffer.

How Good Is Your Credit Score?

300 credit score301 credit score302 credit score303 credit score304 credit score305 credit score306 credit score307 credit score308 credit score309 credit score310 credit score311 credit score312 credit score313 credit score314 credit score315 credit score316 credit score317 credit score318 credit score319 credit score320 credit score321 credit score322 credit score323 credit score324 credit score325 credit score326 credit score327 credit score328 credit score329 credit score330 credit score331 credit score332 credit score333 credit score334 credit score335 credit score336 credit score337 credit score338 credit score339 credit score340 credit score341 credit score342 credit score343 credit score344 credit score345 credit score346 credit score347 credit score348 credit score349 credit score350 credit score351 credit score352 credit score353 credit score354 credit score355 credit score356 credit score357 credit score358 credit score359 credit score360 credit score361 credit score362 credit score363 credit score364 credit score365 credit score366 credit score367 credit score368 credit score369 credit score370 credit score371 credit score372 credit score373 credit score374 credit score375 credit score376 credit score377 credit score378 credit score379 credit score380 credit score381 credit score382 credit score383 credit score384 credit score385 credit score386 credit score387 credit score388 credit score389 credit score390 credit score391 credit score392 credit score393 credit score394 credit score395 credit score396 credit score397 credit score398 credit score399 credit score400 credit score401 credit score402 credit score403 credit score404 credit score405 credit score406 credit score407 credit score408 credit score409 credit score410 credit score411 credit score412 credit score413 credit score414 credit score415 credit score416 credit score417 credit score418 credit score419 credit score420 credit score421 credit score422 credit score423 credit score424 credit score425 credit score426 credit score427 credit score428 credit score429 credit score430 credit score431 credit score432 credit score433 credit score434 credit score435 credit score436 credit score437 credit score438 credit score439 credit score440 credit score441 credit score442 credit score443 credit score444 credit score445 credit score446 credit score447 credit score448 credit score449 credit score450 credit score451 credit score452 credit score453 credit score454 credit score455 credit score456 credit score457 credit score458 credit score459 credit score460 credit score461 credit score462 credit score463 credit score464 credit score465 credit score466 credit score467 credit score468 credit score469 credit score470 credit score471 credit score472 credit score473 credit score474 credit score475 credit score476 credit score477 credit score478 credit score479 credit score480 credit score481 credit score482 credit score483 credit score484 credit score485 credit score486 credit score487 credit score488 credit score489 credit score490 credit score491 credit score492 credit score493 credit score494 credit score495 credit score496 credit score497 credit score498 credit score499 credit score500 credit score501 credit score502 credit score503 credit score504 credit score505 credit score506 credit score507 credit score508 credit score509 credit score510 credit score511 credit score512 credit score513 credit score514 credit score515 credit score516 credit score517 credit score518 credit score519 credit score520 credit score521 credit score522 credit score523 credit score524 credit score525 credit score526 credit score527 credit score528 credit score529 credit score530 credit score531 credit score532 credit score533 credit score534 credit score535 credit score536 credit score537 credit score538 credit score539 credit score540 credit score541 credit score542 credit score543 credit score544 credit score545 credit score546 credit score547 credit score548 credit score549 credit score550 credit score551 credit score552 credit score553 credit score554 credit score555 credit score556 credit score557 credit score558 credit score559 credit score560 credit score561 credit score562 credit score563 credit score564 credit score565 credit score566 credit score567 credit score568 credit score569 credit score570 credit score571 credit score572 credit score573 credit score574 credit score575 credit score576 credit score577 credit score578 credit score579 credit score