Most people assume that repairing or improving credit scores when unemployed during the COVID crisis is an impossible task. But wait, maybe there are some things you can do even in these unprecedented times.
Pay Your Bills on Time
The fastest way to keep your credit score up, or improve it dramatically, is to make your payments on all credit lines and loans on a timely basis. These are the companies that will report your payment history to the 3 big credit bureaus. Of course, when unemployed, it can be near impossible to do this.
But right now, a number of credit card companies and other debtors are allowing deferred payments or no payments at all during the COVID crisis. Contact your creditors to see which ones may be doing this. You may be able to pay others on-time from your unemployment or government stimulus checks.
If you have an emergency fund, use it very carefully, but it could keep your payments on-time for now.
Manage Your Spending Limits
Even in this day and age, it is amazing how few people really know what they spend and what for. Setting up a budget and tracking all your expenditures is a responsible and great habit to form. Most people have items they spend money on every month that they can reduce or eliminate in tough times. And the amount each month is often far more than they realized until they tracked their expenses. A simple coffee drink 3 times a week can add up to $60-75 per month. Going out to eat adds up even faster, even if it is cheaper food.
When times are tough, you should only make essential purchases. Track your expenses and set up a budget; you can meet and eliminate anything that is non-essential.
Use Your Credit Card Wisely
If you have a credit card(s), you should only use it for emergency purchases or essentials like food. You do not want to use more than 25% of your credit card limit, if possible. Anything more will lower your credit scores. If you can pay them in full, do so. If you are trying to lower and eliminate some of them, pay off the one with the lowest balance first – have success. Then work to the next and so on.
You may also qualify for a secured credit card if you do not have a regular one, but they do require a cash deposit.
Consider Balance Transfers
If you have credit card debt, you may want to consider a balance transfer. Credit card companies are aggressively seeking new clients and making 0% interest offers for 1 year or more. This would lower your monthly payment quite a bit. You can also consider consolidating several smaller balances into 1 card using this same technique.
As with all credit, be careful you do not put yourself in a position where you cannot make your payments. You could end up worse off than where you started.
Is a Co-Signer Possible?
If you know someone who has good credit and is willing to help you, you may ask them to co-sign on a new card or even a debt consolidation loan. Usually, only family or good friends will consider doing this for you since they are taking on the risk you will not make your payments.
Clean Up Your Credit
Your credit score may have been reduced due to late payments, but there are ways you can clean up the details of your negative credit report. You can submit a dispute to the credit bureau or the financial institution that reported your late payment status to the bureau. You can also make a goodwill request for deletion of the negative credit report describing your reasons for being late or wait for your credit report timing limit to expire.
Apply for a Credit Builder Loan
You can apply for a secured credit card or a credit builder loan to build your credit. You'll be asked to pay an initial deposit, which will become your credit limit on that card, so you'll be paying yourself back while building your credit and payment history.
Build Your Credit
Long term, you will want to build your credit and be in a position where your purchases, both big and small, cost you less. People with good credit spend less for homes, cars, and everyday purchases. This adds up to tens of thousands of dollars over a period of time… or even more.
There are numerous, free, local, and state services to assist you in getting started, helping you setup a budget, and so on. Do not be afraid to reach out for help.
It could be a life changing event for you!
