Credit Card Tips to Prepare for a Recession

Recessions cause uncertainty, provoking a greater need to monitor one’s financial health. Fortunately, the best credit card practices to prepare for a recession don’t deviate much from the conventional wisdom. For most consumers, the safest courses of action are to keep making timely payments and limit overspending.

Plain and simple, a recession is a sustained period of economic decline. The most widely accepted definition of a recession is when a nation’s gross domestic product (i.e., the total value of goods and services produced) goes down for two consecutive financial quarters. One result of a recession is that people stop investing in businesses. In response, central banks lower interest rates to try to boost spending and, in turn, economic growth.

For the average consumer, a recession can cause a lot of stress due to fluctuations in income and expenses. This makes it all the more important to preserve and ideally improve one’s credit when a downturn is looming. Access to credit is a useful lifeline during a recession, and applying for a credit card with the lowest interest rate is easier with a strong credit score in tow.

The most direct way to protect and build one’s credit score with a credit card is to pay balances in full and on time. When it comes to calculating a credit score, payment history is the single most influential factor. Paying your statement balance in full can prevent interest charges and other fees, keeping your account in good standing on a month-to-month basis, which can help your credit health when a recession hits.

Keeping a low credit utilization ratio (i.e., the percentage of your credit balance compared to your credit limit) is also key. A low ratio indicates a consumer that is not too dependent on credit, which reflects positively on their credit score. This is also a good pro-tip during a recession, as overspending is especially harmful during times of economic uncertainty. 

However, if a consumer’s credit card debt is becoming unmanageable, it might be worth considering a balance transfer. A balance transfer to a different card with a lower interest rate allows a consumer to pay off their debt quicker, as interest will accrue at a lower rate. Some cards even offer 0% (link: /learn/about-creditcards/what-are-the-benefits-of-an-introductory-apr text: introductory APR) promotions for balance transfers, which allow consumers to transfer over debt from a different card and pay zero new interest on the balance over a set period of time. One should be mindful of their debt in advance of a recession and look at (link: /learn/about-loans/recession-tips-for-tackling-debt text: all of the options available). 

If a recession does impact someone’s ability to pay their credit card bills or maintain their spending, it’s helpful to know what options are available regarding certain leniencies and temporary relief. Luckily, there are instances when card issuers will offer credit line increases or collection forbearance to help out consumers during an economic crisis.

A recession can be a very challenging experience, but with a little financial discipline, it doesn’t need to drastically affect your credit. By keeping on top of card payments and preventing overspending, it’s more than possible to stay afloat during difficult times. Having said that, there is a possibility your card issuer can offer some assistance during heightened moments of need.

With Fiona, you can get matched with credit card offers featuring competitive interest rates, along with options for balance transfers and 0% introductory APR, to help you maintain good credit health.