Maintaining a high credit score is a necessary part of being part of the larger economy in the U.S. Your highest or lowest credit scores can dictate whether or not you get a job, can buy a home, or rent an apartment.
With so much riding on your credit scores, you have to do everything you can to keep it at a high level. There could be consequences that stick with you for years, as negative records on your credit report can stay with you for seven years.
That’s a huge amount of time to have something like missed payments when you lose a job. There are ways to keep your credit score high even when things get tough.
Read on to find out what goes into a credit score and how you can work with your creditors when life happens.
How Your Credit Score Really Works
You know what your credit score plays an outsized role in your life. If you want to get a personal loan online or an installment loan, they can play a huge factor in if you qualify, and what interest you pay. Do you know how that number came to be?
Let’s start with the credit bureaus. There are three main credit reporting bureaus: Equifax, Experian, and TransUnion. What these agencies do is collect your consumer data. They collect your credit card information, debt history, any information that has to do with borrowing money from another company.
These agencies hold data for over 200 million Americans. That’s why it was such a big deal when Equifax reported a massive data breach in 2017. Sensitive data such as social security numbers and credit card information was suddenly available on the black market.
What do these companies do with your data? They sell it to payday loan online lenders and anyone else who wants to pull your credit report. Have you had to pay an application fee for an apartment? Most of that fee went to pulling your credit report.
What these companies do is they take your credit history data and using one of the main credit scoring models, they come up with your credit score. That’s why you’ll see a variance in the credit scores. Your lowest credit card score may be with Equifax, while your highest is with TransUnion.
The Components of Your Credit Score
In order to maintain or raise your lowest credit score, you have to know how your credit score is really calculated. Each credit agency uses a similar set of criteria to set your credit score. Where they’ll differ is in how much weight each piece is given.
The main components of your credit score are:
- The amount of time you’ve had a credit history.
- Your recent payment history. If you’ve missed 1-2 payments in the last six months, your credit score will take a significant hit.
- Your credit card balances.
- Public records such as bankruptcies and liens.
- Credit inquiries.
- New credit cards or payday loan online inquiries within a short time frame.
There are several credit scoring models, which takes this data and weighs them a little differently to compute your credit score.
The main credit scoring models are Vantage 3.0 and FICO. You might see UltraFICO coming soon to a lender near you.
What to Do When Life Happens and You Can’t Make Payments
All it takes is a job loss or government shutdown to send people towards financial disaster. If you find yourself in such a situation, there are steps you can take so your lowest credit score doesn’t drop.
Get a Clear Understanding of Your Financial Situation
The first thing you need to do is to put your emotions aside and get clarity around your financial picture. It’s a scary time, but you need to get clear on what bills you have outstanding, what needs to get paid, and what can get put off for a little bit.
You don’t want to put off paying off your credit cards or bad credit loans by even one day. Doing so can drag down your credit scores.
Be Prepared to Provide Proof of Your Situation
You’ll want to get some documentation together regarding your financial situation. Your creditors may ask for documented proof of your financial situation. A letter from your local unemployment office or your former job stating that you’ve been let go are a couple of examples that you can use.
Don’t Pretend You’re an Ostrich
This is important, so pay close attention. DO NOT BURY YOUR HEAD IN THE SAND. Financial challenges are part of life, and they’re among the least fun. It can cause worry, anxiety, depression, and other mental and physical health issues.
That level of stress can lead many people to avoid their financial situation altogether. They’ll refuse to check mail or answer the phone because they know it’s a personal loan no credit check creditor. They’ll stop paying bills altogether.
That tactic is only going to make your situation 100 times worse. It will also affect your lowest credit score for years to come. Know and trust that your situation is temporary, and if you take the appropriate actions, you can prevent a drop in your credit scores.
Consider a Personal Loan
If you know that your situation is temporary, like for a month or two, a personal loan can help you alleviate some of the financial stress.
A personal loan guaranteed approval will allow you to pay off some of your existing debt and have a little left over to cover basic expenses for a few months. You do have to pay back the loan in a timely fashion, which you may be able to do by consolidating your debt for a lower monthly payment.
If you do get a personal loan, you want to be sure that your credit score is at least fair to qualify for a personal loan with a low-interest rate. If your lowest credit score isn’t that great right now, you can still qualify for a personal loan with poor credit.
Call Your Creditors
You’ll want to communicate with your credit card company and other payday loan no credit check lenders to let them know what’s happening at home. Lenders are often understanding and willing to work with you.
Call them well in advance of your payment due date to give you and your creditor time to come up with a solution that works.
Waiting until after your due date will not help your cause. It will only result in a missed payment mark on your credit report, which will remain there for years.
When you contact them, let them know what your situation is, how long you expect it to last for, and propose a solution. For example, you’re not able to make a $75 minimum payment for the next couple of months, but you can do $45.
Get a Side Gig
There’s a good chance that you have skills that you can offer as a freelancer or consultant. You could also pick up a gig as a driver while you’re waiting for your next job.
There are plenty of resources to use, from Upwork, Fiverr, and 99 Designs. You can sell crafts on Etsy or sell your belongings on eBay.
Transfer Your Balance
In situations where your credit score is still good, you could opt to get another credit card and transfer the balance. This would only work if you’re able to pay the minimum balance on the new card.
Otherwise, stick with what you have and work with your current creditors before exposing yourself to more debt.
Don’t Miss a Payment
This cannot be stressed enough. You can’t afford to miss a payment. That will result in your lowest credit card score sinking even lower.
The main thing to remember here is that it will take a while, even years, to undo the damage and repair your credit.
Be Prepared to Rebuild Lowest Credit Score
Should the worst case scenario occur and you damage your credit score, there are measures you can take to start to repair your credit.
Getting a secured credit card is one of them. A secured credit card is a credit card that asks for a deposit before issuing the card. You’ll get a credit limit in the amount of the deposit, usually between $200-$500.
Otherwise, you have to start making payments on time again and let enough time pass for your score to bounce back.
Keep Your Lowest Credit Score High When Life Gets in the Way
Maintaining a good credit score regardless of your circumstances will enable you to do so much in life. It’s hard not to attach too much meaning to those credit score numbers, but they impact almost every part of your life from home to employment.
Most Americans aren’t financially prepared for a financial setback, but you can take steps to prevent a credit disaster from happening. Work with your creditors to maintain your lowest credit score and make sure that you’re still making your minimum monthly payments.
Your creditors are willing to work with you. All you need to do is reach out. If you want to get an influx of cash in the meantime, check out these small personal loans. Here are some other articles you might find helpful: