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With the loss of a job or when sudden illness creates barely affordable medical bills, one of the things looming in the back of your mind is how your credit score will be affected. How do you protect your credit score when the unexpected happens? Here are some tips to save your score and your sanity.
Be Prepared
The most effective way to protect your credit score when your financial situation takes a turn for the worse is to start by getting your credit report. Think of it as your financial report card. It will give you an idea of where you stand financially. There are several sites such as Credit Karma where you can get your credit report free.
Understanding your credit score
Next, you want to understand your credit score, which is calculated based on things such as your current outstanding debt, your current credit limits and how long your credit history is. Now that you know how your credit score is derived, you will know what areas to work on to protect your score.
There are several factors in the assessment of your credit score include payment history, if you have several high balances it may be time to take a look at some of the balance transfer options (such as transferring your balance from a card with a lower interest rate to one with a higher rate, or choosing from one card with low rates to move to another one). Also, any outstanding credit card debt. What is your total credit card debt? How much do you owe? If the debt is not high but is starting to accrue late charges because you didn’t make your payments on time, it may be time to take some action. How many open credit lines do you have? If you’re carrying a balance, look into a credit card that offers a lower interest rate or find a card that has a lower spending limit to reduce the amount of available credit to spend. And last, your credit history. The only way to effectively keep a positive report is to continue to pay your bills on time and not overextend yourself financially.
Make adjustments to lower your payments
We lose jobs, illness strikes, a pandemic could happen. If anything we learned from 2020 is that the unexpected can happen and alter our lives. And when you’re unable to make the minimum required payments to your credit cards or loans, it may seem like your best option is just to sit on the bills until you can financially breath again. Some creditors and lenders can help if you request an accommodation based on your current financial situation. They may let you make partial payments or can temporarily pause your account status, without negatively affecting your credit.
Track your credit report
There are many apps out there that make it easy to keep track of your credit score. Even banks nowadays have credit monitoring included on their apps. I used to be afraid to check my credit and it was a private shame I lived with, but when I became more financially confident, I kept track of my credit like a hawk. Plus, you don’t want any surprises, like say, finding out you are a victim of identity theft, months after it happened. For example, a friend of mine was alerted through a credit report app that someone purchased a car online in her name, and thank goodness she found out in time to dispute it and catch the thieves. You can also make sure all of your automatic payments are going out on time and nothing is being reported as delinquent or past due.
Keep records of all communications
Keep all communication with credit card companies, lenders, and so forth in a file cabinet or in a cloud drive for safe keeping. This includes mail documents you submit or receive, along with your notes you have on any conversations with company representatives.
Staying on top of your bills and knowing what to put as a priority, such as mortgage, rent, and car loan, will help protect your credit and give you peace of mind.