How to Protect Your Credit Score During a Financial Slump

Throughout life, you’ll experience life changes that can have a major impact on your finances. Job loss, losing a spouse, having a child, major medical bills, and disability are just a few life events that can put a strain on your finances. Unfortunately, your credit score can also be impacted during these times. Here are some tips to protect your credit score even when you’re having financial problems.

Scale back your credit card usage. Many people feel more inclined to use their credit cards if they’re experiencing cash flow problems. But, you don’t know how long your financial slump will last and you want to preserve your available credit as long as possible. Plus, as your balance grows so will your minimum payments and your finances may become even more strained. Not only that, bigger balances will hurt your credit score since it drives up your credit utilization which is 30% of your credit score.

Pay only the minimum, at least for now. Typically, the best advice is to pay more than the minimum on your credit cards so you can reduce your balances quicker. However, if you’re having financial troubles, it may be hard to pay more on your credit card balances each month. This is one of the few times it’s actually ok to make the minimum payment on your credit cards.

Stay current on your payments. It may be hard to stick to timely monthly payments each month. Sometimes, you may want to skip payments but pay anyway. Once you get late on your payments, it becomes much harder to get caught up again. The late payment will increase your minimum payment and once you become 30 days past due on your credit card and loan accounts, your credit score is impact. 

Spend less money. Reducing your spending will make it easier to afford your bills and living expenses. You’ll be less likely to hurt your credit score by missing payments. By cutting back on spending, you can live on your income and not have to use your credit cards to make ends meet. 

Call your creditors, if you need to. If you’re still having trouble making ends meet even after cutting back on spending, call your creditors to see if you can go on a payment hardship payment plan. Your lenders may be able to put your loan on temporary forbearance, which will reduce or eliminate your monthly payments for a few months.

Monitor your credit score. By keeping an eye on your credit score, you’re continually reminding yourself of how important it is. You can monitor your credit score for free using a service like CreditKarma.com or CreditSesame.com.

Remember that your payment habits and level of debt have the biggest impact on your credit score. If you can manage these two things, you can protect your credit score during your financial slump and even after you’ve turned your finances around.