Three Ways to Avoid Bad Credit During Tough Times

A sudden job loss, unexpected medical bills, or a family
crisis can all lead to difficult times, financially
speaking. When Americans find themselves facing a period of
tight economic times, measures can be taken to help avoid a
drop in their credit rating. Following are three ways to
avoid bad credit during tough times.

Cut out Unnecessary Expenses

Small purchases, like coffee and a newspaper, can add up
fast. Over a period of time, these seemingly harmless
splurges can eat away at cash needed for bigger expenses.
When money is tight, consumers can create a list of
necessary bills to pay each month. Money should be set
aside for these bills first. Before making extra purchases,
customers can evaluate whether the item is necessary, or if
they can get by without it for a few months.

Some advisors suggest using a credit card to make purchases
when funds are tight. This frees up cash for small items,
and avoids the need to take out a cash advance, which can
be very expensive. While there may be benefits to this, a
credit card should be used sparingly during difficult
times. It is important to use a card with a low interest
rate and set up a payment plan before making a purchase.
Also, the card should only be used on a short-term basis.
Ensure that minimum payments can be made before swiping the
card.

Make Minimum Payments on Time

A decrease in income does not equate a drop in a
person’s credit score. In fact, credit rating is not
determined by income level. It is calculated by a number of
different factors, and one of the most crucial ones is
payment history. Continuing to make minimum credit card
payments on time will help avoid a slump in a
person’s credit rating. Once the situation improves,
the customer can pay off the full balances. These efforts
may lead to more loan approvals in the future.

If for some reason it will be impossible to make a payment,
consider contacting lenders. Tell them of the situation.
They may be able to help work out a payment plan, or
develop a different strategy for bills due.

Think Long-Term

While it may be hard to think about the distant future,
establishing a long-term plan can be beneficial during
tight financial times. In addition to reducing purchases
and making minimum payments, a budget can be developed.
Planning a savings account is another option. When
possible, a small amount of money can be set aside each
month. As time goes on, this fund will grow to become a
safety net. Consumers can dip into it when unexpected bills
arrive.

These measures can help consumers maintain their good
credit score, even during difficult financial times.

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