Three Ways to Avoid Bad Credit During Tough Times

by : Edward Vegliante

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 persons 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 persons 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.