The global coronavirus pandemic has had serious financial consequences for many Americans. High unemployment caused by the shutdown has made it difficult for some to make their monthly payments. Unfortunately, missing payments can have a negative effect on your credit score, which can impact your ability to buy a home in the future. If your credit has suffered as a result of the pandemic, then here’s what you need to do to begin rebuilding it.
Check your credit report
First things first – if you’re concerned about your credit, then get a copy of your credit report. By looking at your report, you can see firsthand what factors are negatively impacting your credit. This will help you prioritize how you tackle repairing your credit. Consider what will make the biggest impact. Your payment history makes up the largest portion of your score, so this is often where you’ll want to start.
Make payments on time
Late payments can stay on your report for up to seven years. Making your payments on time will help you to keep your credit score up. It also helps to eliminate late fees, which can quickly eat up extra funds. If you’re able, then sign-up for automatic payments. This helps you to avoid forgetting to make a payment. Look into ways to reduce your spendings, such as cooking at home or finding ways to lower your Internet or cell phone bill.
Don’t dig a deeper hole
Avoid taking on new debt while you’re repairing your credit. Another factor that determines your credit score is your credit utilization ratio. This is the ratio of how much credit you’re using divided by how much revolving credit you have. You want to keep this number as low as possible. The only type of loan that you should consider getting is a debt consolidation loan. This kind of loan helps you to pay off and close your existing credit.
Keep your accounts open
Your credit history also plays into your score. You should keep your accounts open even if they are paid off. Just remember to keep your accounts active by periodically making small purchases. Make sure to pay off those purchases in full each month.
Check into deferment plans
You’re not the only one experiencing financial problems as a result of the pandemic. For this reason, many lenders are extending deferment plans for credit cards and mortgages. This can be a good way to protect your credit while still being able to miss payments. Just be sure to check your credit report occasionally to ensure that it’s being reported correctly, or it could negatively impact your score.
Ask for lower interest rates
You don’t get what you don’t ask for. And this is often true with low-interest rates. Did you know that you can simply call your lender to ask for a lower rate? While there is no guarantee it will work, it is always worth a try. The money you save on interest payments can then be applied to the principal balance, which will allow you to pay it off faster.