The pandemic has been a very difficult economic time for nearly every American. Millions of people now find themselves out of work. Many others have seen their income significantly diminished.
Not only has this created immediate financial problems, but these struggles can have a lasting impact on your credit score. This three-digit score is one of the most important gauges in your adult life. It determines much more than the interest rates on your future loans. The score can be used by insurance companies to determine your premiums; by utility companies to determine the amount of your deposits; and by landlords to determine whether you are a good candidate to rent an apartment.
According to a recent WalletHub Survey, 87 million Americans are worried about their credit score due to the coronavirus. It is critical for you to do everything you can to improve your credit score, especially coming out of this pandemic. Here are some moves to consider in trying to raise your score.
Don’t Ignore Your Money Problems
Debt can be daunting, and sometimes, improving your credit score may seem hopeless. Some people simply ignore financial problems, thinking it might improve on its own. That usually does not happen. You need to confront your situation and be proactive. Start by assessing your position. Write down all of your debts, including how much you owe and the interest rate on each debt. Then track your spending and create a budget. Put together a plan for repaying your debt.
Next, request a copy of your credit report to make sure the information is accurate. On April 20, Experian, Equifax EFX and TransUnion TRU jointly decided to make credit reports available for free on a weekly basis because so many people were facing financial hardships due to the pandemic. You can access these reports at AnnualCreditReport.com. Take advantage of these reports. Review them and report any inaccurate information to the credit bureau. Call your creditors to see if you are eligible for one of their hardship programs. You may be able to negotiate a lower interest rate, a waiver of fees, or a lower minimum payment if you are struggling to make your minimum payment each month.
Pay All Bills On Time
The biggest factor in calculating your credit score is your payment history; this accounts for 35% of your credit score. So the best thing you can do to start improving your score is to pay every bill on time. You can’t do much about any late payments that took place in the past, but you can commit to making all future payments on time. When it comes to your credit card bill, it’s ideal to pay off the entire balance each month. But if you can’t, make at least the minimum payment before the due date every single month.
During this pandemic, there may be a compelling reason you were late on some payments. If so, note that on your credit report. It may not have an effect on your credit score, but it may be helpful when you are negotiating future loans.
Lower Your Credit Card Debt
The amount you owe is the second-most important factor in calculating your credit score; it accounts for 30% of your score. To maximize your credit score, most experts say you should use no more than 30% of your available credit. Thus, if you have a $5,000 credit limit available on all of your credit cards, carry a combined balance of less than $1,500.
Pay down your existing debt as quickly as possible. The most obvious way to do this is to stop making any additional transactions on your card. Then, put as much money toward paying off your balance as possible. The average credit card has an APR of 16% so it is very costly to carry any balance from one month to the next. You don’t just have to make one big payment on your credit card each month—you can reduce your credit card debt by making micropayments throughout the month.
Don’t Close Your Old Accounts
If you have had some rough financial times, it may be tempting to close old credit card accounts that you haven’t used in a while. This can actually hurt your credit score in two ways. When figuring your credit score, the credit bureaus analyze the age of your accounts and create an “average age.” This length of credit history accounts for 15% of your credit score. If you close some of your older accounts, the average age of your accounts will drop and your credit score will likely decrease.
In addition, closing an old credit card account will damage your credit utilization. Let’s look at an example. If you have two credit cards with a total balance of $2,000 and a combined credit limit of $5,000, you are using 40% of your available credit. If you decide to close a credit card that you are not using which has a $2,000 credit limit, your available credit would drop from $5,000 to $3,000. This means your credit utilization would instantly rise to from 40% to 67%, just from closing the one credit card. Your credit score may further decrease, and it will take you even longer to get to the 30% credit utilization threshold.
Don’t Apply For New Credit Cards
You may feel inclined to get a new credit card to give yourself some additional payment options. However, now may not be the time to apply for a new credit card. Credit card issuers have tightened their credit standards during this pandemic, meaning it will be more difficult to be approved for a card with a reasonable interest rate. In addition, each time you apply for a new credit card, the issuer will make a hard pull on your credit. If you have several of these, your score may decline for a period of time.
A Program To Boost Your Score
If you have been paying your utility and phone bills on time during the pandemic, you may be able to boost your credit score with a program called Experian Boost. The program gathers information from a linked checking or savings account. It pinpoints payments for utility and phone companies, and uses positive payment history to possibly improve a person’s credit score.
Source: Forbes – Money