How to Maintain a Good Credit Score in COVID-19
A credit score is calculated on your discipline of timely payments, your debt to income ratio and your history of servicing existing and past debts.
FREED India
Reviewed by FREED India, Debt Resolution Specialists
4.7/5
₹3,200Cr+
20,000+
20,00,000+4.7/5₹3,200Cr+20,000+20,00,000+Key Takeaways
Financial hardship, whether from job loss, income reduction, or a medical crisis, creates three specific threats to a credit score: missed payments, spiking credit utilisation, and panic-driven credit applications.
The most effective protection is early, proactive communication with lenders before any payment is missed. Banks have more options available before default than after.
RBI guidelines during COVID-19 introduced moratorium protections that temporarily shielded borrowers. These same principles, requesting restructuring proactively, remain available through normal RBI Fair Practices guidelines during any hardship.
Credit score damage from a hardship period is recoverable, but recovery takes 12 to 36 months of consistent positive behaviour after the hardship resolves.
If hardship has already caused significant score damage and underlying debt, FREED can help address both through consolidation or resolution.
Why Financial Hardship Is a Credit Score Risk
A credit score is a reflection of financial behaviour under normal conditions. When income is stable and obligations are being met consistently, the score reflects that stability.
Financial hardship disrupts this. When income drops suddenly, the first pressure appears on the obligations that are furthest from the emotional centre: the credit card minimum that seemed manageable, the personal loan EMI that was fine on the previous salary but now consumes a disproportionate share of what is left.
Miss one payment and a hard late-payment mark appears on the credit report. Miss several and the account moves toward default and NPA classification. Use the credit card to cover living expenses when income is thin, and utilisation spikes past 70%, suppressing the score through a second mechanism simultaneously.
The result: a credit score that was healthy before the hardship deteriorates quickly when hardship arrives, compounding the financial difficulty at exactly the moment when access to affordable credit matters most.
Understanding the specific mechanisms of this deterioration makes it possible to protect against them deliberately.
What COVID-19 Taught India About Credit Scores
The COVID-19 pandemic of 2020 to 2022 was the most widespread sudden income disruption in India's recent history. Millions of salaried employees faced salary cuts or job losses. Millions of self-employed individuals and small business owners saw revenue collapse overnight. EMIs continued due. Credit card minimum dues continued due. The FOIR calculations that had been manageable suddenly produced numbers that were not.
The RBI responded with the COVID-19 moratorium: a period during which EMI payments could be deferred without the deferred payments being reported as missed to credit bureaus. This protected millions of credit scores from the immediate damage of missed payments during the lockdown period.
The moratorium also revealed something important: proactive lender communication produces better outcomes than avoidance. Borrowers who reached out to their banks, requested moratorium benefits, and documented their hardship received protection. Those who simply stopped paying without communicating did not receive the same protection and suffered the full credit score consequences.
This lesson, that proactive communication with lenders during hardship produces better outcomes than avoidance, is not COVID-specific. It is how the credit system responds to hardship in every situation, before and after the pandemic.
The Three Biggest Threats to a Credit Score During Hardship
Missed payments. The highest-weighted factor in the CIBIL score. A single missed EMI or credit card payment produces a hard late-payment mark that can reduce the score by 50 to 100 points. Multiple consecutive missed payments accelerate the damage significantly.
Spiking credit utilisation. When income drops and credit cards are used to cover daily expenses, utilisation rises. A card consistently at 70% to 80% of its limit is suppressing the score through the second-highest-weighted factor, independently of payment history.
Panic-driven credit applications. When income is disrupted, the instinct to apply for new credit, a personal loan to bridge the gap, a new credit card, seems logical. But multiple hard enquiries in a short period further reduce the score and create a pattern of financial stress visible to all subsequent lenders.
All three threats are manageable if addressed proactively rather than reactively.
- 1
Action 1: Contact Lenders Before Missing a Payment
This is the most valuable action available during hardship and the one most borrowers delay too long. Banks have more options available for borrowers who are current on payments than for those who have already missed several. A borrower who contacts the bank before the first missed payment can typically access: a temporary moratorium or interest-only payment period, a tenure
- 2
Action 2: Use Moratorium and Restructuring Options Correctly
During specific economic crises, the RBI has directed banks to offer borrowers moratorium options, periods during which EMI payments can be deferred without credit bureau reporting. The COVID-19 moratorium of 2020 was the most visible example of this. Even outside declared crises, RBI Fair Practices guidelines require banks to have a Board-approved policy for restructuring loans and to consider restructuring
- 3
Action 3: Prioritise EMI Payments Above Discretionary Spending
During hardship, every rupee that remains after income reduction must be allocated deliberately. The allocation that protects the credit score most effectively is: bureau-reporting obligations first, essential living expenses second, discretionary spending last. This means the personal loan EMI and credit card minimum due are paid before dining out, before streaming subscriptions, before clothing purchases, and before most other discretionary
- 4
Action 4: Protect Credit Card Utilisation
During income disruption, the temptation to use credit cards for daily living expenses is real and often necessary. But every rupee charged to the card without being paid in full at month end raises utilisation and suppresses the score. Two specific actions protect utilisation during hardship: Pay the credit card bill in full whenever possible, even if other discretionary spending
- 5
Action 5: Do Not Apply for New Credit Impulsively
The instinct during income disruption is to find new credit sources: a new personal loan, a new credit card, a loan app. Each application triggers a hard enquiry. Multiple enquiries in a short period create a visible pattern of financial stress on the CIBIL report that affects every subsequent lender interaction. Before applying for any new credit during hardship, assess
- 6
Action 6: Check the Credit Report During and After Hardship
The credit report is particularly important to monitor during and after a hardship period, for three specific reasons. First, moratorium payments may have been incorrectly reported. During the COVID-19 moratorium, RBI guidelines required that deferred payments not be reported as missed. Some banks made errors in this reporting. Similar errors can occur in any restructuring arrangement. Second, the hardship period
Are You in a Loan Trap? Quick Check
Move the slider to your total EMIs as a % of monthly salary. See your debt stress level instantly.
EMIs as % of Monthly Salary
When Hardship Has Already Caused Score Damage
If the income disruption has already resulted in missed payments, high utilisation, and a lower CIBIL score, the actions above shift from prevention to repair.
The repair process follows the same logic as initial score building: consistent on-time payments on all active obligations, reducing credit card utilisation below 30%, checking and disputing any report errors, and avoiding new hard enquiries until the score has meaningfully recovered.
The timeline for repair depends on the severity of damage. Moderate score drops from a few missed payments during a temporary hardship typically recover within 12 to 18 months of consistent positive behaviour. More significant damage from an extended default period takes 24 to 36 months.
If the hardship also created a debt situation that is now difficult to manage on the recovered income, the score cannot repair through behaviour alone. The debt structure needs to be addressed first.
FREED helps people in this position. Through Debt Consolidation, multiple obligations are combined into one lower monthly payment that is manageable on the current income. Through Debt Resolution, outstanding dues are settled for less than the full amount, eliminating those obligations. Both approaches reduce the financial pressure that is preventing consistent positive behaviour, creating the conditions where score repair can actually proceed.
About FREED
FREED is India's leading debt resolution platform. We have helped over 60,000 Indians reduce, manage, and completely get out of debt, legally and without harassment.
We also help people understand and rebuild their CIBIL score through FREED Credit Insights, report correction support, and step-by-step guidance throughout and after the resolution process.
Your first consultation is always free. No hidden charges. No judgment.
Visit freed.care
India's leading debt resolution platform
FREED is India's leading platform for debt settlement and financial wellness. We have helped over 60,000 Indians reduce, manage, and get completely out of debt the right and legal way.
Media Mentions
