How to Survive a Financial Hardship and Not Ruin Your Credit

While we all hope we’ll never be in a situation where it’s difficult to pay the bills, things happen. You might be furloughed due to circumstances beyond your control, like the hundreds of thousands of people out of work right now due to Covid-19. Or perhaps you or your spouse were laid off, let go or forced to take a sizable pay cut. Maybe an unforeseen expense is making things difficult. Even if your financial hardship is temporary, that doesn’t mean it’s easy. Things can become especially dicey if you rely on your credit card to make ends meet on your bills, a strategy that can greatly raise your debt and lower your credit score.

 

The good news is there are certain tips and tactics you can follow if you’ve fallen on tough times to help you navigate your way through things without killing your credit score. Here’s a look at how to do it:

 

How to Keep Your Credit Score in Tough Times

 

  • Look into hardship plans with your credit card company: The credit card companies typically don’t publicize this benefit, so there’s a good chance that it’ll be up to you to initiate it. However, many companies do offer hardship plans to help people better manage their debt. Essentially, hardship plans are repayment plans specifically catered toward a particular consumer’s financial situation – and enrolling in such a plan has no direct impact on your credit. Be honest with your creditor about why you need to enroll in such a plan.
  • Stick to the necessities: You likely need to stay up on your car payments, mortgage payments, utilities and perhaps your phone bill. But your cable bill? Your Netflix, Hulu, Amazon Video and other streaming services? Eating out? Your daily morning Starbucks? Those are all things you can likely live without. Don’t be afraid to cancel or put a hold on these luxuries until you can get back on your feet. You’ll thank yourself in the long run.
  • Pick up a part-time job: If you’re out of work and your unemployment benefits aren’t cutting it, don’t be too prideful to get a part-time job to help you get through the tough times. Even just bringing in a few hundred dollars more per week can help you knock out some of the essential bills you’re on the hook for. Plus, you can always leave the part-time gig as soon as you secure full-time work in your desired field once again.
  • Minimally, always make on-time payments: Even if you can only pay the minimum payment on your credit card, make sure you do it. Credit scores are largely weighed on whether or not you make on-time payments. Skipping even once can cause your score to dip – and you don’t want to get docked for something so seemingly simple to avoid.

 

 

Most of all, if you’ve fallen on hard financial times – don’t panic. Come up with a strategy of how you’re going to address your situation, then act. It’s possible to do without sacrificing your credit score.

Will Carrying a Balance on Credit Cards Help My Credit Score?

 

It’s estimated that nearly 60 percent of all credit card holders – or about 110 million Americans – currently have some sort of a balance on their credit card. And we’re willing to bet that if you ask, a good portion of these credit card holders will tell you that carrying debt over month-to-month isn’t a bad thing. In fact, we’re willing to bet that many will tell you that carrying a balance actually helps your credit score.

 

This is one of the most common credit score misconceptions – and while carrying over a balance won’t necessarily hurt your credit score depending on the amount, it certainly will not help it. What’s more is that carrying over a balance is likely to cost you much more money long-term when you consider interest rates. The average credit card interest rate today is more than 19 percent. Let’s take a closer look at this myth:

 

Why Carrying a Balance Won’t Help Your Credit Score

Like we said above, just because you’re carrying a balance on your credit card doesn’t mean your score will be negatively impacted. But it certainly won’t help your score. Paying down your debt or paying your credit card off will help your score, however, because you’ll be freeing up more of your credit utilization, or improving your debt-to-credit ratio. If you’re unable to pay off your credit card balance in full each month, it’s recommended that your credit utilization is no greater than 30 percent to maintain a good credit score. This means that if your credit card maximum is $1,000, you’ll want to owe no more than $300. If your credit utilization ratio goes above 30 percent, then you’ll likely begin to see your score dip.

 

Costly Balances

It’s recommended to only charge what you know you can pay off each month. However, we realize that this isn’t realistic for many Americans. But aside from the fact that carrying a balance won’t help your credit score, it could also cost you big bucks in the long term. That’s because if you’re carrying a balance over from month-to-month, you’ll have to pay interest on this balance – and that can add up over time, especially if you get into a habit of only making the minimum payment and let you balance balloon.

 

Credit Card Management Tips

So what are some of the best practices to keeping your credit score high as it pertains to managing your credit card? Here’s a look:

 

  • Make your payments on time: If nothing else, you want to ensure you’re making at the least the minimum payment by your due date. Payment history accounts for 35 percent of your FICO score.
  • Set alerts to keep your utilization ratio in check: Many credit card companies will allow you to set email or text message alerts for if your debt-to-credit ratio goes above 30 percent on your card.
  • Prioritize your credit card: Being that it likely has a much higher interest rate than your other debt, you should be prioritizing paying down debt on your credit card to save money in the long run. If you are able to make multiple payments each month to keep the balance low, consider doing so.
  • Be careful about closing other accounts: If you have multiple credit cards, keep in mind that the sum of them will factor into your overall limit and debt-to-credit ratio. So if you lose a certain amount of credit by closing one or more cards, you could inadvertently cause your utilization ratio to rise – and that will cause your credit score to drop.
Bad Credit Home Loan

Good Credit Score – When it Comes to Real Estate

Your credit scoreis essentially the lifeblood of your borrowing ability. A low score will often be accompanied by high interest rates – that is, if your mortgage even gets approved at all – while a high score will be accompanied by low interest rates, saving you more long-term. But when it comes to real estate and mortgages, you might be wondering just what exactly constitutes as “good” credit, and whether or not your credit score is weighed differently when applying for a mortgage than when, say, applying for a car loan or when opening a new credit card. This post will take a look at that:

What is ‘Good’ Credit in Real Estate?

In the real estate world, most experts agree that if your FICO score is at least 740, you’ll be eligible for the best interest rates that are offered at the time. However, for every 20 points your credit score comes in below this 740 threshold, you’re likely to have add-ons to the interest rate – and you may not be eligible for certain programs. So say, for instance, that you have a 740 credit score and you lock in a 4.125 percent interest rate on your mortgage loan. If your score came in at 700, your rate might be 4.5 percent, at 660 it might be 5 percent and so on.

The experts also agree that too low a credit score will result in either very high interest rates or in complete denial of your mortgage application. Generally speaking, this low range where things can become somewhat sticky is between 600 and 620.

In saying all of this, it is worth noting that whether a mortgage application is approved or denied, as well as the interest rate, is largely dependent on the lender that you’re working with. For instance, some lenders may be more flexible with low credit scores than others.

What if I Have Poor Real Estate Credit?

If you’re in the 600-620 gray area and are either unsure of whether your mortgage application will be approved or if you can afford a higher interest rate if it is approved, your best option is to work to repair your credit to make you a more attractive consumer in the future. Here are some tips and suggestions in doing so:

  • Make sure you pay all of your bills on time. This is one of the largest weighed factors in determining your credit score.
  • Concentrate on paying down high-interest debt.
  • Check your credit report to ensure that it is error-free. (It’s estimated that the majority of credit reports have some sort of error on them.)
  • Ensure that your debts owed is at or less than 30 percent of your total credit allotment.
  • Only take out new lines of credit when necessary.

How much does a hard inquiry drop my credit score?

Your Credit Minute Show Notes:

  • 00:01                                   What’s up YouTubers, this is Nik Tsoukalis from Key Credit Repair. Today, I’m going to address something very serious. Something that, for many of you, has made you quite sad. Hard inquiries. Okay? Some of you think this is devastating, this is the end of the world, you know? First, let’s talk about what is a hard inquiry. A hard inquiry is not when you check your credit score online, it’s not when you’re going to Credit Karma, or Privacy Guard, or Smartcredit. com. Anytime you’re checking your credit score for the purpose of credit education, credit monitoring, it does not hurt your credit score. A hard inquiry is a record that’s placed against your credit report when you are checking your credit for the purpose of blending, for being extended credit. Okay?
  • 00:48                                   And the question I get all day long is how much is my credit score going to drop if I have my credit checked? How much, how much, how much, how much, how much? Is my credit going to be destroyed? Is my credit destroyed? I’ve already checked my credit a few times with a few banks, is it over? Am I never going to get approved for something again? And the short answer to that is you are insane. You are insane. Stop listening to this craziness that hard inquiries are destroying your credit. It’s just false, it’s wrong, it’s totally not true.
  • 01:25                                   So let’s elaborate a little bit on this. So I’m going to reference my boys over at myFICO. com. If you’re not sure or not aware who FICO is, it’s Fair Isaac Company. Do you know those guys that invented credit scores? They tell us how inquiries affect your credit score. So I’m going to share this article below in the comments, but in the credit education section of myFICO.com, you can actually search inquiries, and it’s the first question that’s up there, and I’m going to read it off to you guys. Okay? If your FICO scores change, they probably won’t drop much if you apply for several credit cards within a short period of time. Multiple inquiries will appear on your credit report. Looking for new credit can equate with high risk. Okay? But that’s not definitive.
  • 02:16                                   But most credit scores are not affected my multiple inquiries from auto, mortgage, or student loans lenders within a short period of time. The short period of time is not defined. Guys, I’ve been doing this for 15 years, looking at credit reports for a long, long time. I’ve probably looked at, I don’t know, a hundred thousand credit reports, a couple hundred thousand credit reports. It’s almost absurd at this point. I can read these things, I can use ESP to probably tell you what’s on your credit report. I’ve seen so many of these things. The short period of time, I’d probably say 60 to 90 days, okay? If you’re shopping around for something like a mortgage and you want to check out a few different banks and lenders, you want to do a little rate shopping, okay? Keep in mind, to get a proper quote, they need to check your credit score. Don’t be afraid of doing this. It’s not going to hurt your credit score.
  • 03:13                                   FICO has told us, not just in this article but in multiple articles, that rate shopping increase are okay. So those hard inquiries, although they will appear on your credit score or your credit report, they’re not going to drastically drop your credit score. In fact, you may see absolutely zero drop in your credit score. In my experience, I have yet to see a credit report have any adverse effect, or credit score have any adverse effect from a hard inquiry. Guys, over a hundred thousand credit reports easily with my eyes closed, and I have never, ever seen a credit score drop because of a rate shopping inquiry.
  • 03:53                                   Okay, you’re shopping around for a car. Go nuts, go do what you need to do. You’re an educated consumer. Mortgage, go nuts. Shop for five, six banks. You have to. You’re trying to get a good deal. Guys, if you’re getting a mortgage, you’re talking about a 30-year commitment, and you’re worried about your, the hard inquiry affecting your credit score? You’re talking about paying back a bank over 30 years. It could be millions of dollars in interest and you’re worried about the hard inquiry or maybe the 10 bucks you’re going to spend to check your credit report? It’s insane. Same thing with a car. You’re paying back that car loan over the course of 5, 6, 7, sometimes even 10 years, that’s a lot of interest, so you got to make sure you’re getting a good deal.
  • 04:33                                   Um, now, for the first part of this, this answer, um, keep in mind, erratic behavior on your credit report could have an adverse effect. So, um, let’s say you decided to check your credit report a couple times with a credit card company, a couple times with the student loans company, a couple of personal loans, a couple of car loans, five or six mortgages, a few personal loans, and you did this all in one day. Okay? The credit scoring formula is designed to assess risk, okay, to protect future banks and lenders from making a wrong decision in terms of extending you credit, okay? So rightfully so, you could see a drop in your credit score. That’s a red alert. You are now a red alert, okay, maybe you’re a flight risk, maybe you’re about to leave the country forever and ever.
  • 05:25                                   I’ll give you an example. You’re about to leave the country forever and ever, you’re never coming back, and you decide, hey, right before I head out of this place, I’m going to go nuts. I’m going to buy a bunch of stuff, I’m going to get a Macy’s card, a Target card, a Walmart card, a few personal loans, a few car loans. I don’t know what you’re going to do with a car loan. A few lines of credit, and you’re going to go crazy. You could be considered a flight risk, and that’s the only case where you could see a drop in your credit score. And I have to tell you, that is extremely rare. I’ve never seen it before, but that’s what we’ve been told by FICO on numerous occasions.
  • 06:03                                   So guys, hard inquiries, if you’re doing it for the right reasons, don’t be scared of it. Do it, trust your lender. They know what they’re talking about guys, and they’re not going to drop your credit score. Okay? Um, and I’m going to squash one more misconception or one more myth, okay? Or make you guys aware of something. If you’re monitoring your credit score online, you’re on a Credit Karma, you’re on a Privacy Guard, you’re on a ScoreSense, you’re on any of these websites, keep in mind, most of these websites are not using the Fair Isaac Company Scoring method that banks and lenders use, which is typically a, kind of an older version, which is like FICO 4 or FICO 5, okay? These are 20-year-old scoring formulas. They’re using things like VantageScores, um, Credit Plus scores, those scoring formulas are not used by banks or for educational purposes only, but they’re also for marketing purposes.
  • 06:54                                   So they have an incentive to tell you that the world, um, is going to be over because you just had an inquiry. And the incentive they have is when they send you an email saying you just had an inquiry, red alert, login to the website, check the app. They’re going to offer you something. You’re going to login to the app, that’s the bait to get you to login to their app, and when you login to their app, what’s there? There’s a banner for a credit card, there’s a banner for some sort of marketing affiliation they have, there’s a banner for something, and they’re making money on those offers. Because most of these credit reporting companies, what are they? They’re marketing companies, they’re marketing platforms. You get your credit report and score for free, you login, every time you login, they’re marketing something to you. They get your data, they’re reselling it to companies, all this jazz, okay?
  • 07:44                                   So they really, uh, have been pushing this inquiry myth in a big, big way, to get people to login to their websites. Red alert, you’ve had an inquiry, the world is over. Um, new world order is taking over because of inquiries. Login quick, we will save your life. It’s false, it’s a lie, it’s garbage, okay? So guys, in terms of inquiries, that little frown, let’s turn it upside-down. Why don’t we do this together. Okay? Let’s smile. Do your job, do your rate shopping. Guys, this is Nik Tsoukalis with Key Credit Repair. Thank you for checking out our Credit Minute. Subscribe up here, down here, depending if you’re on Facebook or YouTube. Check us out for a free consultation, our staff is standing by, and have an amazing day. See you guys.

What To Do If You Don’t Have A Credit Score

What To Do If You Don't Have A Credit Score
What To Do If You Don’t Have A Credit Score
It’s estimated that about 50 million American adults don’t have a credit score.

That’s right — not good credit, OK credit or poor credit. We’re talking no credit. And that can be a huge problem if you’re unable to pay for something like a car or a home with cash and need to take out a loan to finance it. No credit score means no loan.

There are a few reasons why you might not have any sort of credit history. Perhaps you’ve gotten into the habit of paying for everything with cash? Or maybe you’ve established lines of credit, but haven’t used them within the past two years? If you’re new to America, it’s possible that you haven’t established it yet. Whatever the reason, we’d strongly suggest you start establishing some credit roots immediately, as that three-digit number holds so much weight when it comes to your financial future. This post will take a closer look at what to do if you don’t currently have a credit score. Here’s a look:

Don’t Have a Credit Score? Do This!

No credit score? Here are some considerations for how to establish credit:

  • Get a secured credit card: Think of these as credit cards for beginners. They work just like a credit card does, except you need to have a cash deposit to back up any usage. Usually, this cash deposit you put forward is the same amount as your credit limit. Secured cards work just as how regular credit cards do for the most part. You can charge purchases and you’ll have a payment date to abide by. Any balance not paid in full is subject to interest. After you’ve dipped your feet in the water with a secured card, it’s usually pretty easy to take the next step to an unsecured one.
  • Get a retail credit card: Yes, you can get some nice perks based on the store that offers it, but the real incentive is that these are usually easier cards to get approved for — even if your credit is lacking.
  • Find a co-signer: If you don’t want to go the secured card route, consider asking a friend or family member if they’ll co-sign with you on a credit card.
  • Ask to be an authorized user on a family member’s card: Don’t want to go the co-signer route? See if someone will add you as a user on their existing credit card. This can be a great way to build credit based on that card’s total usage, whether it’s you doing the spending or not.
  • Can your rent payments help you? Many landlords use rent-reporting services, which can help their tenants build credit, especially when it comes to making on-time payments. Not every scoring formula will take this into consideration, but many do.

Experian offering potentially higher credit scores in exchange for access to people’s bank accounts.

Your Credit Minute Show Notes:

  • 00:01                                   What’s up everyone. Nik Tsoukales here with Key Credit Repair. I’ve got some quick credit news for you, hot off the press from Housing Wire uh, yesterday morning. Um, we have Experian offering potentially high credit scores in exchange to access to people’s bank accounts, and a lot of people are wondering what this is all about. And a lot of people are wondering about some other news, that kind of coincides with this about having cell phone usage, or how you’re paying your cell phone, uh, affect your credit in a positive way.
  • 00:28                                   So, in the past, what has always happened was if you’ve made your uh, utility payments on time, um, including your cell phone payments, it didn’t report to the credit agencies. But, if you wanted to default, it quickly reported as a collection. It’s probably the number one thing that we work on here at Key Credit Repair. But, you never got the positives from it, only the negatives if things fell apart. Well, Experian today, or yesterday, uh, announced that it’s releasing a new program called Experian Boost. Kind of an interesting little uh, little program. How beneficial it’s going to be, um, kind of up for debate, because it’s only Experian’s program. Obviously, we want to see all three credit agencies, and all three credit scores looking good. Experian, Trinity and then Equifax. But even so, this is a step in the right direction.
  • 01:12                                   So essentially, what’s going to happen is you’re going to be providing Experian, and obviously this is an opt-in, you’re going to be providing Experian with your bank account information. Experian will then use some fancy software to log into your bank account and essentially analyze your transactions and look at things like utility payments, okay? They will then report those on-time payments to your utility companies, as well as your cell phone company, um, to uh, the Experian credit report. That will then get taken into account under their new FICO eight algorithm, and will potentially increase your credit scores.
  • 01:45                                   Now, let’s say you’re not making a cell phone payment, or let’s say you stopped. You get a late. That’s one of the questions we’ve been asked today about this, and the answer to that is right now, probably not. What they’re telling us is if you stopped making a payment, maybe a payment’s not due, um, what’ll happen is if you stop making those payments, 90 days later the Experian Boost program simply will not take that account, uh, will not take that account into account. So, it will no longer report to uh, the Experian credit report, so keep that in mind. So, you shouldn’t be negatively affected. Obviously, if you miss payments for 90 days, it will then go into collections anyway, so you’ll get the negative ramifications of that then.
  • 02:26                                   Um, some quick stuff. This is uh, for utility bills. Um, cell phones. Again, uh, if you stop paying, it will discontinue in 90 days. This is being used for FICO eight. Keep in mind, banks and lenders, for the purpose of mortgage lending, they’re not using FICO eight. They’re using FICO four. They’re using some prehistoric versions of the FICO algorithm. FICO eight is not the score of choice for home lending. And I say this, and I, and I warn everyone, because this is the credit score that our typical client is using to finance a home. Um, most of our clients are trying to buy a home eventually. They’re trying to become uh, homeowners from lenders, so it’s very important.
  • 03:06                                   Um, also something to keep in the back of your mind is the fact that you are linking up your bank account information to Experian. Not to say that al-, already have everything on us, uh, they already have a lot of our data, but you’re also linking up your bank account information. So, they’ll have the ability to see uh, your spending habits, and where your money’s going, so that’s something to think about as well. Do we want to share that aspect of our finances with one of the credit agencies? We all know the credit agencies do resell data, okay? They’re big marketing company as well, so that’s another thing to keep in mind. Uh, guys, this is Nick Tsoukales with Credit News Daily. I’m going to include a link here for the text, or transcript of this blog. Feel free to read through it, and feel free to email us at info@keycreditrepair.com. If you have any questions on how this could adversely affect you, or even benefit you in the future. Thanks and have a great day.
Experian offering potentially higher credit scores in exchange for access to people’s bank accounts.
Experian offering potentially higher credit scores in exchange for access to people’s bank accounts.

What’s the best way to manage your credit card spending?

Your Credit Minute Show Notes:

  • 00:00                                   Hey guys, credit question of the day coming from [Shanta Clark 00:00:03]. Thank you so much for sending us this message, um, and for giving us this post. So- so Shanta asked, “What’s the best way to manage your credit card spend?” Guys, the best way to manage it is to not use them. Call me old school. I’ve met a lot of rich people in the last 10 years and the general consensus is cash is king. Spend all the money in your pocket. Budget all you want, but if you can’t budget, don’t worry about it.
  • 00:28                                   Save some money every week out of your paycheck. Um, and then if you wanna burn through everything else, burn through. Have fun spending it. Have a ball, okay? Let’s stay away from credit card debt. There shouldn’t be credit card spending. There shouldn’t be, uh, any credit card spending management. That shouldn’t be a tool. It shouldn’t be in system … It shouldn’t be a system. If you’re caught up in the points game, you’re dead in the water already guys.
  • 00:52                                   So again, my suggestion … Um, Shanta Clark, again, thanks for your question, but my suggestion is stay away from the whole darn thing. It’s the number one wealth buster in the United States.
What’s the best way to manage your credit card spending?
What’s the best way to manage your credit card spending?

How much money should you save in case of an emergency?

Your Credit Minute Show Notes:

 

  • 00:00                                   All right guys. Credit question of the day. And we’ll actually make this a finance question of the day, is coming from [Sherry Lynn White 00:00:06]. Sherry Lynn thank you so much for posting your question on our Facebook page and the question is: How much money should you save in case of an emergency? Well, let’s think about this. In 2008, I would have said a year’s worth. Why? Because when people lost jobs in 2008, it took a lot longer to get a job. Now, the economy is a little stronger, if you’re going to apply for another job, it might be a shorter time frame. So, I would say the minimum should be six months. Okay. You want to look at all of your monthly expenses, you should be able to jot this down on a small piece of paper, even a napkin. Jot down those expenses, times six, that’s what you want to have in the bank. Now, if you’re getting out of debt, I would suggest actually putting that to the side. Okay. The debt’s probably costing you 20 plus percent, get a $1,000 in the bank, just in case of an emergency, something breaks down, you got a car issue, you need to rent a car, something happens. Okay. And attack the debt, don’t worry about your reserve.
  • 01:03                                   SO the order is, put a thousand bucks in the bank, pay off the debt, and then move to get six months reserves. And once you’re done with the six months reserves, then you want to start investing in putting money into retirement. Thanks, guys. Have a great day.
How much money should you save in case of an emergency?
How much money should you save in case of an emergency?

Is it better to pay off debt slowly or all at once?

Your Credit Minute Show Notes:

  • 00:01                                   Marlena Perkins, thank you for your credit question on our Facebook page earlier. And Marlena’s question is, “This would be a blessing. Is it better to pay off debt slowly or all at once?”
  • 00:13                                   Okay. Real simple, guys. It’s just the numbers. If you’ve got the money in the bank, it’s earning .0015%, like literally nothing. Okay? Your money, uh, if you compare it to, or if you compare the interest rate you’re getting from the bank to the inflation, your money’s actually losing value in the bank. Your credit card company’s charging you 28%. Right?
  • 00:36                                   So, your money’s sitting in the bank is costing you 28%. Okay? If you’re nursing credit card debt. So, should you pay it off at once if you have the money? Absolutely. Hell, yes. You better do it. Um, you will be fine if you want to leave $100.00 in your pocket just in case something happens between now and the next paycheck. Rock and roll, but pay off the debt. Don’t nurse it. It’s not your friend. Credit card companies don’t like you. They’re trying to get paid by you. Okay. So, get away from debt. If you need to pay it slowly, then what you want to do is start with the smallest debt, pay the minimums on everything else. Pay that sucker off and move your way up the list. It’s called the Snowball Effect, but we can talk about that another time.
  • 01:16                                   Have a great day, guys.
Is it better to pay off debt slowly or all at once?
Is it better to pay off debt slowly or all at once?