The past year and a half has been undeniably challenging on multiple fronts. A global pandemic scuttled even the best-laid plans and thrust everyone into a state of personal, health, and financial uncertainty.
Those who lost their jobs in the initial lockdown phase had few options for getting new ones. Some were forced to work from home but had hours, wages, and salaries cut. Small businesses shuttered, unable to pivot to a contactless and sheltered world.
Government stimulus payments and increased unemployment benefits helped, but the bills didn’t stop coming. Some people found themselves defaulting on loans and mortgages. Others maxed out credit cards to pay utility bills and fill their pandemic pantries.
You may be reemerging from a disastrous year dragging along a battered credit score. As you try to regain more solid financial footing, you may be wondering what you can do about it. Fortunately, here are five ways you can rebuild your credit score after a hard year.
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Many people are overly dependent on unsecured credit. Credit cards provide a way to spend more than you have, although you’ll pay for the privilege. And if you have poor or no credit, you might be denied that privilege in the first place.
Fortunately, you can show credit bureaus that you can use credit responsibly (and thus boost your score) by using a credit builder card. Because these cards are secured by an initial deposit or funds transferred from checking, they’re easier to qualify for. The amount of the deposit or funds transfer becomes your credit limit.
The best way to use such cards to repair your credit is to charge small amounts and pay the balance in full each month. But even if you must carry a balance, paying your bill on time every month will garner a positive response from credit bureaus.
If you’re struggling to keep up with your bills, the magic word is “please.” Try using it with your creditors after the past year to see if they’ll cut you a break. They’re not required to oblige you, but it doesn’t hurt to ask.
Many credit card companies allowed their customers to delay making payments during the height of the pandemic. That forbearance was likely a great offer for you at the time. It showed that creditors were willing to help where they could, short of forgiving debt outright.
Although this forbearance was kind, interest continued to accrue and probably at a high rate. So call your credit card company and ask if they will reduce your interest rate. They may be willing to help, but only if you ask nicely and use the magic word.
If you’re behind on other payments, like a car loan, ask for more time or to change the payment schedule. Payment history comprises a whopping 35% of your credit score. A little adjustment could give you the leeway you need to get timely payments back on track.
The mere act of checking your credit score with all three major reporting bureaus won’t bump up your score. Nor will it lower your score, as you can check your own credit report without raising any flags. It could, however, help you catch any mistakes that might be dragging your score down.
Let’s face it. A lot of weird and wonky things have occurred during the past year or so. Although you might have dreaded monitoring your credit score, you need to if you haven’t been.
Look for any reported late payments on accounts that offered forbearance. If you didn’t make a payment for a few months, it shouldn’t have flagged the account. Just verify that you responded to the forbearance offer appropriately before you complain.
As always, check for fraudulent use of any of your credit cards and report those as well. Although many credit scores rose during the pandemic as the result of forbearance programs, hackers were still at work. If you were a victim, let the credit reporting bureaus know.
Debt consolidation loans allow you to pay off all individual creditors and repay a single loan. The loan usually offers a lower interest rate and a lower single monthly payment than the others combined. That can simplify your budget and help you pay off debt at a faster rate.
Do be aware that a debt consolidation loan will lower your credit score for a while. The new credit application and account will flag your score and reduce the overall age of your credit. However, with timely payments on the consolidation loan, your score will recover in time.
Your score will benefit from a lower credit utilization rate, so long as those paid-in-full credit accounts remain open. Some lenders may require you to close the credit accounts you pay off with the consolidation loan. Try to find one that allows you to keep all or most of them open to lower your utilization rate.
Consolidating your debt may save you thousands in interest while paying off multiple loan balances sooner. Just make sure you don’t start using those paid-off credit cards again. Do so, and you’ll find yourself right back where you started.
If your credit took a hit during the past year or so, it’s probably because you relied on it too heavily. Financial experts recommend that you have at least six months’ worth of expenses saved up for emergency use. (Say, for example, a global pandemic-driven economic shutdown.)
Budgets help us live within our means. There’s this much to pay living expenses like rent or the mortgage, insurance, auto loans, and utilities. There’s that much to pay for groceries, eating out, clothing, and incidentals. Finally, there’s a certain amount you tuck away in your savings and retirement accounts.
Add it all up, and those cumulative payments should not exceed the sum of money you bring home. If they do, you’ll find yourself relying on unsecured credit cards and falling behind again.
It’s kind of like dieting, which revolves around the ratio of calories consumed and calories burned. If you want to drop pounds, you must use up more calories than you take in. If you want to live life within your means, the budget must balance.
Without a doubt, it’s been a tough year or more, personally, professionally, and financially. Perhaps what we have learned above all is that recovery, however long and difficult, is possible.
Your credit may be among the casualties of this war. But it can pick itself up, dust itself off, and get back to work for you. All it takes is time, patience, and a commitment to rebuilding that all-important credit score.