There is no doubt that credit score management is a tough task for most people even in ordinary times. A lot of consumers do not even put a lot of effort into making sure that their score is acceptable. For some, they have just accepted the fact that they cannot do anything much about it. While others could only see it as a waste of time.
This is what CNBC shared in an article based on a recent survey. It showed that only about 37% of respondents have an idea of how their credit score is computed. This is really low considering that your score is an important part of your finances. A lot of people do not pay attention to their credit score because it is not something they see on a daily basis.
You need to request a copy of your credit score if you want to know what it is. This is one reason why credit score management is a bit tough for a lot of people. The information is not readily available to you. If it is out of sight, it is out of mind and you do not think about it that much. As a result, it does not form an important part of your financial decisions.
Even during a health crisis, you need to thread through your finances carefully. At times, much more now than before. This is because your finances will become a crucial part of how you get through this pandemic. More than your health, your finances will help you buy what you need, pay for your purchases, and even explore options of getting additional credit in times of need. Here are some of the components factored in when computing your score.
Payment history
This is perhaps one of the most important aspects of your score computation. Credit score management is oftentimes synonymous with your payment history. Credit reporting bureaus rely on a big deal with how you make payments on your financial obligations. If you make it a point to send out your payments on or before your due date, there is a good chance your payment history will contribute positively to your score.
To prove the point, this makes up about 35% of your FICO score. It only goes to show the weight this carries in score computation. With the health crisis ongoing, making payments can be a struggle and as a result, your credit score could take a hit. With everything that is happening and if your income is affected, it will be challenging to stay up to date with your payments.
One thing you can do is ask your lenders or creditors if they have a program to help their customers at this time of need. CNET shares that there are a lot of lenders coming out with ways to help their customers. If paying for the full amount is difficult, you can opt to pay just the minimum amount for now. Just make sure that you are paying on time.
Credit utilization
If you happen to be using more than 30% of your available credit at any given time, this will negatively impact your score. Credit score management also means making sure you keep an eye out on how much of your available credit you use. This could be difficult at a time like this. When your income is impacted, there is a good chance that you will start to rely on available credit.
The idea behind this is that when you use too much of your credit, lenders would start to think that you are over-extending yourself. When you are using too much of your credit and you get into a tight spot, there is a high probability that you will default on your payments. This is one of the reasons why credit reporting bureaus take this into consideration when computing for your score.
The situation is fluid at the moment where infected cases grow every day. To help you manage your credit score in spite of this, try to limit the use of your cards for essential needs only. Once you do, make it a point to pay it down to a point where you are below 30%. You can also spread out the use of your cards to help you keep each balance low.
Credit history length
Credit score management also takes into consideration your payment history. This is usually the credit card that has been with you for a long time. There are times when you are offered 0% interest cards to help you consolidate your loans. This can be a big help but be careful when you start to think about discontinuing sone of your cards.
You might choose to discontinue your oldest card and this can wipe away all the payment history you have made from your credit report. You can simply put away some of your cards so you do not use them for a certain period of time. This will help you retain your payment history on those cards, focus on your 0% payments, and help improve your score.
How to take care of your credit score
Now that you have an idea about some of the factors used to compute for your score, here are some tips to help you take care of your credit score.
Missing payments
As on-time payments is a big factor in computing for your credit score, you need to make sure that you always pay on-time. It is possible that you always send out your payment on your due date but check how long it is posted. You could be sending it out on the due date but if it is received and posted after a few days, your payment is late. Be sure you clear this with your creditor. You can also use technology to help remind you of your due dates. It can be setting up an alarm or enrolling automatic payments every month.
Using too much available credit
Credit score management forces you to be mindful of how you use your available credit. The credit utilization ratio is a big factor in how your score is computed. Apart from spreading out your charges over several credit cards, you can also put cash payment into the mix. It would be challenging to keep on depleting your cash reserves during a health crisis so use it sparingly.
Applying for a lot of credit in a short time
As the coronavirus spreads across the country, a lot of businesses will and are already affected by it. In a bid to stay financially afloat, you might start to apply for several credit options in a short amount of time. You could be surprised that this can actually dip your score because too much credit application in a short span of time is viewed negatively by credit reporting bureaus. One option is to simply ask your existing lenders if they can increase your credit limit. Not only do you lower the need to take out new credit but this also helps credit utilization.
Credit score management during this time can be a difficult task but you need to make sure that you are still able to keep your score up to help you access credit options when you need them.
