How To Protect Your Credit Score During A Recession

Canada is entering a period of severe economic uncertainty, marked by mass layoffs, rising inflation, and a volatile global market. Job losses and shrinking budgets are already a reality for many households, and there’s no clear end in sight.

Your credit score might not feel like a top priority in times like these, but it should be. A strong credit score can be one of your most powerful financial tools when accessing affordable credit, qualifying for housing, or rebuilding after a tough stretch.

You're not alone if you're worried about keeping up with payments or managing debt. These practical tips will help you protect your credit score during a recession, so you're in the best possible shape when the economy begins to recover.

Why pay your bills on time?

Even a single late payment on a loan or credit card can have a detrimental impact on your credit score. And in Canada, that information stays on your credit report for 6 years.

Being late with a payment by 1 month usually won’t trigger a bad report since late payments are generally reported the month after they are missed, but it’s always better to be safe than sorry.

The longer you miss making a payment, the greater the impact it will have on your score. If you do miss a payment, do your best to get that paid up as quickly as possible.

12 strategies for paying bills on time even when money is tight

But in times like these, it can be hard to see how you'll be able to keep up with everything. So here are 12 tips to get you ahead.

Apply for credit before you need it

It sounds nonsensical, but it’s solid advice. If you think there’s any chance you’ll need more credit before your financial crisis is over, try to secure it as soon as you can. If you wait until you actually need it, there’s a better chance you won’t qualify for it.

If you have outstanding high interest debt, talk to your bank now and see if you can get a low interest debt consolidation loan, or apply for a low interest balance transfer credit card.

Make minimum payments on everything

If you can’t pay all your bills in full, don’t be tempted to pay one in full and let the rest slide. Do what you can to pay the minimums on everything, so you don’t end up reported for a delinquent payment.

Juggle your debt

In dire circumstances, borrowing money from one loan or card to pay another repeatedly is a short-term solution. It’s not pretty, but it will help you stay on top of minimum payments and help keep your credit score from taking a hit.

Make a list and then call everyone on that list

Sit down and make a detailed list of any service, utility, bank, or lender who you’ll owe money to in the near future, then take the time to call or contact everyone on that list.

With the current financial crisis caused by the Trump administration’s tariffs, there’s a chance you’ll be able to defer payments, set up payment plans, get reduced interest rates, or get other forms of relief on your:

• utilities,
• rent,
• mortgage,
• credit cards,
• loans,
• property taxes, and
• possibly other things that haven’t been announced yet.

Keep your eye on the news – there are new programs being introduced by all levels of government to help Canadians weather this financial storm.

Switch to non-credit products where possible

If you can manage it, one way to keep your credit score from taking a hit from missed payments is to switch to non-credit products as much as possible. Get a prepaid cell phone, prepaid credit cards, and other such products where you generally pay in advance.

Set calendar reminders to review all bills twice a month

If you’re seriously concerned about missing a payment, set a calendar event every 2 weeks to remind you to do a quick review of your accounts. You can’t leave this to just once a month, else you’ll run greater risk of messing up your budget or having something slip through the cracks.

Apply for any assistance you qualify for

In response to rising unemployment and economic uncertainty, all levels of the Canadian government continue to offer financial support programs aimed at helping individuals and families weather the downturn. Updates to Employment Insurance (EI), expanded eligibility for job loss and underemployment benefits, and targeted programs for specific industries and regions are now in place.

If you’ve been laid off or your hours have been cut, it’s worth taking the time to research what you’re entitled to. You may qualify for regular EI benefits, provincial income supports, rent subsidies, or retraining grants. Small business owners and gig workers may also have access to tailored aid programs.

Visit official government websites and apply for every program you’re eligible for. It can make a real difference in staying financially stable during uncertain times.

Hang on to your cash reserves as much as possible

If you have some cash liquidity, don’t be tempted to dump that on your debts right now. Hang on to it and use it to cover any minimum payments you can’t otherwise manage, and to help avoid increasing your debt load. To help with this...

Create a strict budget and stick to it

Most people who read this site probably already have a budget, but it’s time to tighten those purse strings. Set a strict budget and do your best to stick to it. It’s never fun, but it will help you bounce back faster when the world gets back to normal.

Eliminate as much discretionary spending as possible

Of course, part of setting a strict budget is to cut as much discretionary spending as possible. Are you currently subscribing to multiple streaming services? Cancel all but one. Is your cell phone plan pretty extravagant? Time to switch to the most basic plan you can handle.

Run through all your subscriptions, services, and other discretionary spending and go lean. If nothing else, you’ll learn a lot about financial discipline that will help you better manage your money once this crisis passes.

File your taxes (if you have a refund coming)

Even with extended tax filing deadlines, it’s wise to get your taxes filed as soon as possible, especially if you expect a refund. The government may offer additional relief or benefits based on your filing status, and a tax refund can provide some much-needed financial flexibility during these uncertain times.

If you’re facing financial challenges, a refund could help bolster your cash reserves and reduce the strain on your budget. For those who owe taxes, consider reviewing any available options for payment deferrals or relief programs, as there may be new initiatives designed to help you manage your tax debt during the economic downturn.

Do not touch your retirement savings

It’s never a good idea to start withdrawing from your retirement savings before you actually retire, and now is a particularly terrible time to do that. If you haven’t been watching, the stock market has taken a beating since the tariffs came into effect, and your retirement savings are probably down significantly right now.

Hold fast. Leave that alone and let it grow over time as things get back to normal.

Managing financial stress during a recession

Navigating financial difficulties during a recession can significantly affect your mental health. Worry about job loss, mounting bills, or an uncertain future can leave you feeling overwhelmed, anxious, or even hopeless. It’s essential to recognize that financial stress is common, and taking care of your mental well-being during such times is just as critical as managing your finances.

Create a plan, but don’t overwhelm yourself

Having a clear financial plan can help reduce anxiety. But take small, manageable steps rather than overwhelming yourself with an ambitious to-do list. Whether it’s creating a budget, applying for assistance programs, or simply setting aside 15 minutes each day to track your finances, incremental progress can help boost your confidence.

If you can’t do that, find small goals that you can do. It’s not about how much you do in the beginning, but rather creating habits that when added up lead to an overall positive impact on your financial situation.

Maintain a long-term perspective

It’s easy to get caught up in the stress of day-to-day survival during a recession, but try to remind yourself that this situation is temporary. With time, the economy will stabilize, and things will improve. By taking care of your mental health and addressing financial concerns one step at a time, you’ll be better equipped to handle whatever challenges come your way.

Summary

It’s a pretty dark and chaotic time for everyone right now, and we’re all going through some financial stress. We hope these tips will help you regain some semblance of control and to feel a little less overwhelmed by current events. Hold fast.