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Is your credit score COVID-proof?
With the COVID-19 pandemic touching every part of the country and showing little sign of stopping any time soon, many people worry about the uncertainties and how it may affect their finances.
While maintaining our overall health and wellbeing has become a top priority, as economic conditions continue to shift, many people are also beginning to reconsider how they spend their money.
Much like a potential employer views your resume for your work history, lenders view your credit score as an outline of your financial dependability. Your credit score is evidence of how you’ve met financial obligations in the past, such as monthly utility bills or mortgage payments. It also suggests how likely you’ll be to make payments, complete and on time in the future.
That’s why, more than ever, Americans need to monitor their financial situation and their credit score.
Check Your Score Often
Your credit score is so much more than just a number. And along with credit reports, it creates a snapshot of your financial health.
Your credit score is a living thing and it can be affected by several factors, including the following:
- Payment History: When do you pay your bills? Do you pay the full amount that you owe every month?
- Credit Type: What kind of debt are you carrying? Do you have credit card debt, a mortgage, or other outstanding loans?
- Credit Activity: How often do you use your credit cards? Do you pay them off every month or carry a balance? How often do you apply for new credit?
- Credit History: How have you managed past debt? Do you have a long history of missing payments?
- Existing Debt Amount: How much do you currently owe? Do you add to the amount monthly?
- Available Credit: How much credit do you have? How much of your available credit have you used, and how much is still available?
Slipping up in just one of these areas can negatively impact your credit score, as can mistakes or errors on your account.
It’s essential to check your credit history at least once a year to catch outstanding concerns before they can become major credit score detractors. If you don’t keep an eye on your credit history, the first time you might find out about a problem is when you are denied a loan or mortgage because of a bad credit score.
If you see a missed payment noted on your file, reach out to the lender and settle the account as quickly as possible. Do the same for any errors or mistakes, especially surrounding your name and address.
As you pay down debt or apply for a new credit card, check your score more frequently to see how this may impact it. Using a free site like CreditKarma, CreditSesame, or CreditWise can be a quick way to get an idea of how you’re doing with your credit.
Keep in mind that whenever you try to qualify for a mortgage or other loan, the lender will request your credit report and score, which will give “official” credit scores and the full details of your credit history.
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Budget Spending and Plan Which Accounts To Use For What
Taking care of your credit score during coronavirus is important. By implementing a budget and planning ahead of time which accounts or credit cards to use, you can make your credit score coronavirus-resilient.
A careful review of your income, regular bills, and expenses is the first step to getting your financial affairs in good shape. Next, take a look at any potential benefits that come with specific credit cards or spending accounts. Do you get cashback on a particular credit card? Do you get points or rewards if you shop at an individual retailer? If you do, use these cards or shop at these stores for essential purchases and enjoy the extra perks, discounts, or financial savings.
Planning out credit card use before you go shopping is another way to stick to a budget. If you know how much you can safely afford to pay at the end of each month, spending less than your limit will keep your credit score soaring as you stick to paying down your monthly balance.
If you are burdened by carrying credit card debt or face challenges paying down the debt because of the coronavirus pandemic, borrowing from the equity in your home, tapping into investments or other savings, etc., might be a useful course of action. This can help you get out from under the typically higher credit card interest rates and put you in a better financial situation.
Pay What You Can
When it comes to paying off debt, regular payments make all the difference.
Following a careful review of your finances, including your income and expenses, consider how much you can pay on any outstanding debts or long-term loans. If your minimum payment is $20 every month, but you can afford to pay $50 on a credit card balance to bring it down, doing so will protect your credit score, help you get out of debt sooner, and save money in interest payments.
Talk To Your Lenders – Don’t Avoid Them
If you owe money and don’t think you can successfully meet all of your financial commitments, it’s human nature to want to avoid talking to your lenders. But you’ll be in a better situation if you take action and communicate with them.
Some lenders, such as credit card companies, can often work with you to reduce the amount of your monthly payment or lower your interest rate without negatively impacting your credit score.
If you have built up equity in your home, tapping into that equity through a home cash-out refinance loan can also be an effective way of protecting your credit score while reducing your debt load. You can use the money you get from refinancing to pay down credit card debt and then afford your mortgage. Refinancing can also make sticking to a budget easier because you can see more clearly where your money is going.
Cash-out refinancing can be a great resource to make your credit score COVID-proof. If you’re interested in finding out what will work best for your specific situation, reach out to one of our specialized loan officers for information on mortgage refinancing and other options with your current mortgage.
At Homefinity, we understand that no two situations are exactly the same. That’s why we take the time to understand your unique needs. We want to help you stay in the home you love while protecting your financial future. Call us today and we would be happy to help.