For many of us, this is the most challenging time we’ve ever lived through. The worldwide economy has ground to a halt, and, as of April 9, 2020, 10 million people had already filed for unemployment benefits.
When you’re struggling to pay your bills, it’s difficult to manage your credit score. However, it’s still important! Make the wrong moves, and you could end up with the worst credit score you’ve ever had.
A low credit score will haunt you for years, so you’ll want to do everything you can to make sure you don’t damage your credit. Watch out for these common things that hurt your credit score and do your best to avoid them!
1. Late Payments
This is one of the most common causes of bad credit. In fact, your payment history accounts for 35% of your credit score. Make sure you always pay on time, even if you only have enough to pay the minimum payment.
It’s a great idea to set this up, either through your bank or your credit card company, so that the minimum payments are made automatically. You can always send additional money, but this way you can ensure that you’re never late.
2. Missed Payments
Missing a payment completely is even worse than paying late.
If you’ve found that you’re out of work due to the current COVID-19 pandemic, make sure to reach out to your lender right away to let them know. Many are working with their customers right now, offering anything from extending your due dates to lowering minimum payments or reducing interest rates.
It’s critical, however, that you call them! When you do, make sure to let them know your problems are stemming from this current crisis. Write down the name of the person you spoke to and ask if the call is being recorded.
Before you hang up, re-confirm the changes that have been made, when your next payment is due, and how much you owe. Then make sure you make that payment!
A charge-off occurs when the credit card company believes you’re not going to pay back what you owe. It basically shows that they’ve given up on you.
This is one of the worst things that can happen and is one of the common ways credit can be lost.
4. Incorrect Credit Report
It’s possible for the credit reporting agencies to make a mistake! It’s always a good idea to check out your credit report and make sure everything on there is accurate. You may find anything from accounts that aren’t yours to reports of late payments or defaults that never happened.
You can pull up your reports for free, then contact the agencies directly to request that they fix any errors you find. This usually takes a few months as the company often needs to conduct an investigation.
If you don’t have time for this or feel like you’re in over your head, this credit repair company, and many others like it, offer services to handle this for you. It’s definitely worth considering, as incorrect information can really drag down your credit score.
5. High Account Balances
Part of your score is also calculated based on your “debt utilization ratio.” This basically refers to the amount of debt you have outstanding versus how much credit you have available. When your balances are high, your score will go down.
If this is happening to you, try to pay down your cards so that you have a nice cushion of credit. Another option is to try to get more credit, but you’ll want to be careful with this. Not only is this very difficult if you already have credit score issues but if you end up using that credit, you’ll find that you’re in way over your head.
6. Applying for Many Loans at Once
Credit inquiries are another important part of your credit score. If you apply for multiple credit cards and/or loans at the same time, this is a red flag that can pull down your credit score. Note that there’s a difference between a “hard inquiry” and a “soft inquiry.”
Before you allow any lender to pull your credit report, make sure you know which type of they’ll run. Avoid having too many hard inquiries in a short period of time.
Losing your home to foreclosure isn’t just heartbreaking, it can also do a ton of damage to your credit score. This will make it harder for you to buy a new home in the future, and could even make it difficult to find a place to rent.
If you see that you won’t be able to make your mortgage payment, reach out to your lender right away. Many are offering relief programs due to COVID-19 which may help.
Even in regular circumstances, communicating with your lender can often help you avoid foreclosure. You may be able to restructure your loan, take on a roommate, or arrange to sell the home yourself before you reach the point of going into foreclosure.
Even if you have to take extreme financial measures, you’re best off doing everything you can to keep a foreclosure off of your credit report.
Avoid These Worst Credit Score Mistakes
Try not to let these rough financial times cause you to end up with the worst credit score you’ve ever had. Remember to pay at least your minimums on time, avoid piling up too much debt, and frequently check your credit report for errors.
Take a look through the rest of our blog for more financial tips to help you keep your finances on track!