Take these 4 steps to recession-proof your credit

Nobody knows when — or even if — a recession will hit the economy. But it's hard not to worry about how an economic downturn would affect your finances.

A recession can affect your employment and earnings. If you're not prepared, you may find yourself turning to debt to pay for the basics, which can inflict long-lasting damage to your credit score.

But you can take steps to protect your creditworthiness during a bad economy. CNBC Select sat down with Rod Griffin, senior director of public education and advocacy for Experian, and talked about what you can do to prepare your credit for a potential recession.

The first thing Griffin recommends is checking your credit. "You can't do anything about it until you know what's there."

To keep your credit safe, it's critical to know what's on your credit reports. This will help you spot your weak spots, your strengths and what habits you may need to change.

Normally, you can get a free copy of your credit report once a year from each bureau at AnnualCreditReport.com. But right now, due to the pandemic, you can get free reports weekly through December 2023.

Reviewing your reports isn't the only way to monitor your credit health. You also can sign up for a credit monitoring service that lets you regularly check your credit. CNBC Select's favorite options include CreditWise® from Capital One to monitor your VantageScore (which you can use whether or not you're a Capital One cardholder and is free) and IdentityForce® UltraSecure and UltraSecure+Credit, a more comprehensive service that also checks the dark web for your personal information (among other services). Keep in mind that because it provides more than monitoring, IdentityForce charges a yearly fee.

In a tough financial situation, you don't want credit to be the only safety net you have. "Credit can be a very useful tool in that regard," Griffin says. "The risk is that you become too dependent on credit... Then it can become a problem."

To avoid getting hooked on credit, develop healthy saving habits and make sure your emergency fund is in good shape. It's generally recommended your fund have three to six months' worth of basic living expenses. If you feel you can't afford to save that much, start small. Every bit you put away can help, especially if you're consistent with the saving.

"It's about being prepared," Griffin says. "We say it all the time, but you need to have emergency savings because you just don't know what life will bring."

When deciding where to put your savings, pick one with a high APY such as the LendingClub High-Yield Savings account. That way your emergency savings can earn you more money in interest payments than it would otherwise.

If you already have credit card debt, paying it off should become a priority. With credit card interest rates continuing to reach new heights, you don't want to get stuck with credit card debt if a recession hits. It's not only hard on your wallet because of interest charges — it can also hurt your credit score.

The credit utilization ratio, or how much of your available credit you're using, is the second most important credit factor after payment history. If you're using more than 30% of your credit line, it can have a significant negative impact on your scores.

Further, if you lose income during a recession, it may become difficult to keep making card payments. Missed payments are the worst thing you can do to your credit score and they stay on your reports for seven years.

For that reason, it's best to get rid of credit card debt as soon as possible. If your credit is good (and your score is 670 or greater), it may be a good idea to look into a balance transfer credit card which will allow you to pay off your balance interest-free — as long as you finish paying during the introductory period. Here are some of CNBC Select's top picks for the best balance transfer cards:

If you do need to use credit, come up with a repayment strategy before you do it.

"Make sure that you have a plan for the way that you're going to use credit," Griffin says. "Know why you are [taking on debt], know how you're going to repay it and know when it will be repaid."

You might also want to consider a 0% APR credit card (like the ones below) if you're anticipating big expenses. This way, you can have more than a year to pay off the balance without any interest, plus you may earn rewards for spending along the way.

Whichever card you choose to use, evaluate your budget and decide how much you'll be paying down your debt each month, as well as when your last payment will be. That way you won't carry any debt past the 0% APR period, which would force you to pay hefty interest charges. "You can't really have a plan for repaying debt if you don't have an end date," Griffin says.

While an economic downturn may be a stressful time and affect your financial circumstances, your credit doesn't have to take a hit. To recession-proof your credit, start by reviewing what's already happening in your credit reports. Then continue to work on your savings and try to avoid carrying debt unless you have a solid plan for paying it off.

"If you're doing those things, I think by and large, you'll be okay in the long run," says Griffin.

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For rates and fees of the Blue Cash Preferred® Card from American Express, click here.