Managing your credit through a financial hardship

Managing your credit is always important, but maybe never so important as when times are tough. Here’s how to make sure you make the most of a not-so-great situation.

Your credit score is your “grade” and signals to lenders that you are worthy (or not) of credit. It also determines the interest rate you will be charged—people with higher scores have proven their creditworthiness and therefore will be given lower rates than those who are a risky lend. It literally pays to keep an eye on your score and do the most to make and keep it high.

These are projections of my own credit score (currently 704). Letting just one payment fall behind for 30 days dropped my score by over 100 points. Letting all of my accounts fall behind, again, for just 30 days, dropped it even further. Interestingly enough, the simulator showed that if I keep up my on-time payments for more than two years my score would not change at all. So, while perfection is expected it’s not rewarded, but you will be heavily dinged for missing just one payment.

Your credit is made of three parts: Your report, your score, and your relationship with your creditors. Even if you don’t have a lot of open accounts, you still have a report. It might surprise you to learn what’s listed on it. You can read a little bit more about why I am such a big advocate of vigilant credit report monitoring here and here.

Never pay for your credit report, ever. You can get a copy of your credit report from all three bureaus (TransUnion, Equifax, and Experian) from this site. Annual Credit Report.com is backed by the Federal Trade Commission and the Consumer Financial Protection Bureau. Personally, I get one report every four months and perform a quarterly audit. That may be overkill, but can you blame me?

Reports are populated by lenders and may only be groomed by consumers. It’s your right and duty to make sure that what’s on the books about you and your credit it true, accurate, and fairly reported. Advocate for yourself, you have no other choice.

You can add a consumer statement to your reports, and you absolutely should do that if you’ve been impacted by a major event, like say COVID-19 or another disaster. A sample statement is: “Be advised that the negative accounts on my credit report are related to the Coronavirus. I intend to make these up as soon as I can.” Short, sweet, and covers the situation,

While looking over your report you may find errors. Again, you must advocate for yourself to correct them. Any inaccuracy at all is up for correction—anything. I would never advise you to attempt a correction (and seek removal) of a valid debt, but you do you.

Once you begin the formal correction process through the credit bureau, they have 30 days to correct it or the item in question will be struck from your permanent record.

Your overall score is determined by a combination of a few things, but your payment history and utilization make up 2/3 of it. You want a strong history of on-time payments and low usage of the funds available to you. Most credit cards come with a perk of free score monitoring, but if yours doesn’t, check out Credit Karma or Credit Sesame. They’re free, reliable, and easy to use. Checking your own score will never decrease it.

The very least you should do it make your minimum payment on time for all accounts.

What if you can’t pay? It happens, really. We’ve all been there and lots of us are there right now. COVID-19 has shaken up our economy in a dramatic way and there’s no doubt that the ripples will be felt for months to come. If you can’t make your payment this month, or next, you need to communicate that to your creditors. Closed mouths don’t get fed, and no one will know you’re struggling if you don’t speak up.

As of today this information is accurate, but things are changing fast. Programs are in place to help consumers who have been impacted by COVID-19, use them if you need to.

For programs that have a time limit, know that the money will be due eventually. This is not a free pass to not pay your bills, it’s a lifeline in an emergency. Eventually that money will be due.

To use the lifelines that are in place you have to say the magic word: COVID-19 or Coronavirus. These programs are available to help those impacted. If you do not identify yourself and part of that group the benefits will not be made available to you. You don’t need to get too granular in the details of your situation, but you need to make it clear that you need the assistance available.

If you feel like you’re beyond a simple delay on payments then a balance transfer may not be a bad idea. NerdWallet has a nice compilation that is updated regularly. A strong credit history and high score will up your chances of opening a new line of credit.

Once you transfer your balance to a 0% card, make a plan to pay down your debt based on your current financial situation. Not what it used to be, not what it could be, what it is this month. Be realistic. And please, please: Do not rack up debt on the card you just cleared! Forget all about it and don’t use it to make your situation worse. That’s not what this is about.

Taking out a loan to give yourself some cash flow certainly is a viable option, but should only be used as a last resort. The Small Business Association has lots of resources and federal funds were just freed up. The application process is long and depends heavily on your banking and credit history—it’s also been pretty slow-moving.

Peer to peer lending is a fairly new option borne of a lack of personal loans being offered by traditional banks. When you apply for a loan through a P2P lender your credit rating is evaluated, again, providing those with the highest scores to the lowest rate. Investopedia maintains a regularly updated review of a few that even includes recommended score ranges for application.

I know that lots of us (me included!) are feeling anxious about our finances during this crazy time. Organizing your credit information and maintaining communication with your lenders are two ways you can help stay in control. Maintaining the health of your credit is key in moving forward through all of this.

Feeling like you need a little more in-depth help? Reach out to me using the form below. I’m offering my services for free for the next three months. Let’s get through this together.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s