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How To Protect Your Credit Score When You’re Struggling Financially

Barb Nefer

Your credit score is a critically important number. Not only does it affect your ability to open new credit accounts, but it can impact your insurance rates and even potentially cost you a new job if it’s too low. Because credit scores are tied to the way you use credit and your repayment history, financial problems often lead to a lowered score due to missed payments and overuse of available balances.

Even if you have a great job and your finances seem secure, you never know when a crisis like the COVID-19 pandemic will sweep the country, leaving lost jobs and financial devastation in its wake. The following tips will help you preserve your credit score, even if you’re struggling.

Last updated: May 12, 2020

Don’t Miss Payments on Accounts Like Credit Cards and Loans That Feed Into Your Credit Score

Your payment history is the most important factor when your credit score gets calculated. Credit score compiler FICO says that the timeliness of your payments account for 35% of your credit score. Make those payments a priority when your finances start getting shaky, even if it means giving up other things like cable television or that deluxe phone plan. You can always increase your discretionary spending when the hard times are over, but late credit card payments haunt your credit report for up to seven years.

Resist the Temptation To Max Out Your Credit Cards

According to the Experian 2019 Consumer Credit Review, 67% of Americans have at least one credit card, and of course, many people carry a full deck of credit cards in their wallets. That may mean thousands of dollars of available credit. If so, it might seem like a lifesaver when you’re having financial difficulties, but charging too much takes a toll on your credit score. High balances relative to your available credit are a sure way to pull your credit score down, and you still have to pay all that money back later, plus all the interest it accrues.

According to FICO, the amount of money you owe is second only to your payment history in terms of its influence on your credit score, accounting for 30% of the total.

Don’t Close Your Credit Cards Once You Pay Them Off

If you’re fortunate enough to make the final payment on a credit card balance that you’ve been chipping away at, even when you’re having financial problems, keep that account open. Closing credit card accounts hurts your credit score, especially for accounts that you’ve had for a long time.

You also probably don’t want to close an account with particularly good benefits that can come in handy during hard times. For example, the PenFed Power Cash Rewards Visa Signature® Card offers excellent cash-back benefits like 1.5% cash back on all your purchases. Or if you have a card like the PenFed Gold Visa® Card, it remains a solid everyday card that can be your go-to because of its low APR. Instead of closing your best cards, set them aside so you can resume using them once your financial crisis passes.

Make Sure That Your Credit Report Is Error-Free

It’s bad enough to take a hit on your credit score because of actual problems when your finances hit a rough spot. You may not be able to avoid dings from things like late payments caused by job loss or other emergency circumstances, but don’t let your score take an undeserved hit because of incorrect negatives on your credit reports. You’re entitled to a free copy of your credit report every year from all three of the major credit bureaus.

You should be in the habit of using this entitlement to check your reports every year, but it becomes even more critical to do it when you’re struggling financially. Order your reports, scour them for mistakes that might be hurting your credit score and dispute them to get them corrected as soon as possible. The Federal Trade Commission (FTC) warns that you should take care to order your credit reports only from the official source. Otherwise, you could find yourself on the hook for a monthly service that you agreed to when ordering a “free” report from a website unrelated to the official one.

Discuss Your Options With a Reputable Credit Counselor

Sometimes you fall behind on your payments despite your best efforts, and your credit score starts slipping. Credit counselors don’t have a magic wand to add a few points onto your credit score, but they’ll help you put together a plan to stave off further damage and get back on track. The FTC says that reputable credit counselors are available through credit unions, universities, housing authorities, military bases and branches of the U.S. Cooperative Extension Service. Choose carefully because even though a credit counseling agency may be nonprofit, it could still charge you high fees or may hide the true cost of its services.

Be Careful About Rate Shopping for Mortgages and Other Loans

Sometimes you need to take out a loan even when your finances aren’t in the best shape. If you have to borrow money for something major, like a new car or a home loan, too many inquiries will hurt your credit score unless you take a deliberate approach. Confine your rate shopping to a very short, specific time period so the inquiries don’t appear to be for a number of separate loans versus a single large one. Otherwise, your credit score will take a hit for each of the individual inquiries.

Free Up Money for Other Bills by Making Only the Minimum Payment Due on Your Credit Cards

You may be in the habit of paying more money or even paying off your balance every month to avoid interest charges. That’s not possible when times turn tough, but making the minimum payment still keeps you from incurring a black mark on your credit report. It also frees you up to shift any leftover funds to other important bills, like your rent, mortgage and utilities. You’ll pay more interest by paying the smallest possible amount, but it’s the price you’ll have to pay until your finances improve and you’re in a position to up your payments.

Put Any Windfall Payments Toward Your Bills

Even when you’re in bad financial straits, you may come into unexpected money. For example, you may receive a stimulus check like the ones sent out during the COVID-19 crisis, a tax refund or even an unexpected gift, inheritance or settlement. If you’re fortunate enough to receive a financial windfall, large or small, putting it toward revolving credit payments is the best way to make it work for your credit score. It also keeps you in good standing with your creditors, as lowering your credit score is not the only negative fallout when you don’t make your payments. Your bank may also close your credit card account, causing you to lose a card with great perks that you could benefit from at a later date.

Don’t Take On a Lot of New Debt When You’re Finding It Hard To Pay Your Existing Bills

It’s tempting to finance purchases when you really want something but don’t have the money to pay for it upfront, but opening new credit cards or taking out loans to buy unnecessary items can hurt you in multiple ways. First, your credit score takes a hit for every inquiry when you apply for loans or credit cards. If you’re approved, too many new accounts don’t look good on your credit report. Then, you’ll hurt yourself even more if your finances get even worse and you end up unable to pay the loans or credit cards.

Talk To Your Creditors When Financial Problems Threaten To Overwhelm You

You might be reluctant to pick up the phone and admit that you’re in over your head, but there’s no shame in falling behind and asking for help. Many creditors will work with you, especially if you’re a long-term customer with a good past record. Even if your credit score is already going down due to late payments, talking to your creditors may help you avoid further damage caused by write-offs, debt collectors, liens and judgments. They won’t have to turn to those extreme measures if you work out arrangements directly with them, and you’ll keep the damage to your credit score to a minimum.

Consider Moving Your High-Interest Balances to a Low-Interest or No-Interest Credit Card

If you already have a low-interest card, shift your higher balances to that account. If not, consider opening a card with a no-interest promotion or low interest rate while your credit score is still good enough to qualify and make the shift to help you keep it there.

Cards like the PenFed Power Cash Rewards Visa Signature® Card and the PenFed Gold Visa® Card offer balance transfers and attractive interest rates that can make a big difference when financial problems force you to make only minimum monthly payments. It can be worth the temporary hit for opening a new account because that impact can pale in comparison to the impact of late payments.

Make a Payment on Your Credit Cards Even If You Can’t Afford To Pay the Minimum

Sometimes your finances get so bleak that you can’t even afford to make the minimum required payments on your credit cards. That doesn’t mean you should give up and not pay anything at all. Sending even a small amount proves your good faith and shows the bank that you’re not trying to avoid your debts. This may make them more willing to work with you rather than turning the account over to a debt collector.

Send Your Payment Even If It’s a Few Days Late

Your credit score doesn’t start being impacted until a payment is at least 30 days late, according to the Experian credit bureau. Pay your bills as soon as you can, and don’t stress if you only missed the due date by a few days. You’ve got a good chance of avoiding any damage to your credit score, especially if you transfer the funds electronically rather than depending on postal delivery.

Don’t Co-Sign for Anyone Else’s Credit Accounts

Resist the urge to help others who are also struggling financially. You might be tempted to help a family member or even a friend qualify for that credit card or car loan that they urgently need. They might swear they’ll make the payments on time, but they can’t foresee every circumstance. If they can’t make good on the promise, the creditor will come after you. You’ll either have to pay the debt or your credit score will take a beating. Avoid this unpleasant situation by adopting a “co-sign, no-sign” policy.

Put Yourself on a Spending Freeze Until Your Financial Situation Improves

If you’re having money troubles, tightening up your budget can keep them from getting even worse and impacting your credit score. Stash those credit cards away where you can’t easily get to them. If you’re afraid you’ll give in to temptation, you can do something more drastic like sealing them inside a water-filled plastic bag and keeping them in your freezer. You’ll want to keep one card accessible for emergencies, so make it a low-interest card.

Consolidate Credit Card Balances Even If There Isn’t a Big Savings on Interest

It may be cheaper to meet one consolidated monthly payment, and it’s also easier to make a payment on one account than to remember the payment on several. If you have a credit card like the PenFed Gold Visa® Card, which has a low interest rate, you’ll reap a double benefit of making a single payment and paying less interest. With this card, there are multiple ways you can save money and help your credit score.

Freeze Your Credit

This is a smart move at any time because it helps protect you from fraud. When you’re in the midst of financial troubles, it adds an extra dimension of credit score protection because it makes you think twice about opening new lines of credit. Taking the step of unfreezing your credit to allow for the credit check makes you take pause to make sure you’re getting a great deal.

Use Up Points and Gift Cards To Help You Save Money

Amazingly, $3 billion worth of gift cards go unused every year. Many people get these cards as presents and toss them into a drawer, intending to redeem them later, and the cards end up forgotten. Credit card points can build up, too, and you might forget to use them. These points and gift cards are valuable because, if you have some, you can spend them on items you were planning to buy and divert the unused cash to your bills.

See If Your Employer Offers an Employee Assistance Program (EAP) That Offers Financial Advice

Many employers offer EAPS as a free benefit to their workers. Many people associate these programs with help for things like a mental health crisis, but their coverage is typically broader. Many offer help with financial issues, including help in making a budget or referrals to credit counseling. If you’re struggling and you have this resource available, use it. EAP use is usually confidential, so no one at your job will know that reached out for assistance.

Create a Budget If You Don’t Already Have One

When you do well financially, you might not feel the need to make a budget. However, when things get tight, it suddenly feels more urgent to know where your money is going and to find places where you can staunch the outflow. At its most basic, a budget is a simple document that includes how much money you make and where you spend it, including necessary expenses and optional purchases. Once you lay out that information, you can find areas where it makes sense to cut back and reroute the funds toward paying your bills to preserve your credit score.

Reassess Your Existing Budget

If you already have a budget, it’s good to periodically reassess it. In times of financial crisis, that reassessment becomes mandatory. Look for areas to trim and reroute the extra funds to the bills that make the biggest impact on your credit score, like credit cards and loan payments. You can always revisit the budget and add more money to the leisure and discretionary spending side when your finances improve.

Consider a Second Job, Even If It’s Just Temporary Gig Work

Even in good times, the U.S. Census Bureau says that 8.3% of Americans work second jobs. If you’re not one of them and you find yourself in financial trouble, it might be a viable option. Gigs, like shopping for Instacart or delivering pizzas, don’t pay a fortune, but you’ll get some extra money quickly. The funds you pull in from a side gig can mean the difference between preserving your credit score by making a minimum monthly payment on a credit card or letting it go unpaid and taking a hit. Be choosy about your side gig, as some opportunities, like multilevel marketing, might look attractive on the surface, but you’ll find that they’re major money-losers when you dig a little deeper.

Use Credit Score Preservation as an Excuse To Clean House During a Financial Rough Patch

You probably have plenty of unnecessary items cluttering up your home, so convert them to quick cash when you’re hurting financially. Sell them via a free advertisement on a site like Facebook Marketplace, Craigslist or Nextdoor and put that money toward your bills. Just beware of scammers who try to take advantage of online sellers. Avoid problems by only conducting business in person, and choose a safe place like a police station parking lot for the transaction.

Cancel Unnecessary Subscriptions

Loan and credit card payments likely aren’t your only monthly outlays. You may have subscriptions to television and music services, apps and more that you started when you had plenty of money to pay for them. When you’re struggling, they’re a great place to start when you’re cutting expenses. Cancel them and reroute what you’d spend on them each month to your highest-interest credit cards or to other bills that affect your credit score. Even inexpensive subscriptions that cost $5 to $10 per month end up as yearly outlays of $60 to $120.

Make Every Purchase Pay You Back

Your need to spend some money doesn’t stop just because you’re in the midst of a financial crisis. You can have a budget that’s trimmed down to the bare bones, but you still need to buy necessities like food and clothing, and you might have to cover emergencies like unexpected medical expenses or car repairs. If you need to use a credit card, make sure you have one that pays you back with cash or points so you gain some benefit from those necessary expenses. This way, you can possibly pay off the card with the cash back to prevent your credit score from hurting due to missed payments.

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This article originally appeared on GOBankingRates.com: How To Protect Your Credit Score When You’re Struggling Financially