How to Save Your Credit During the Economic Crisis |
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by: Janna Weiss
Is your credit in bad shape? If so, you’re not alone. The credit horizon looks pretty discouraging right now, but it’s never a bad time to start paying off your debts and hiking up your credit score. The credit crunch won’t last forever; if you take care of your credit now, you’ll have access to great rates after the storm has passed. Follow these tips for weathering the financial crisis and keeping your credit on the up and up.
Just don't buy things you can't afford.
Paying down your credit card debt is especially important during the credit crunch. If you want to pay down or pay off your cards, don't sabotage your efforts by charging more purchases. Wait until your debt has dwindled, and then decide if you can really afford the things you want. They might have to wait. Also, don't fall prey to feelings of entitlement. It can be tempting to buy things after a period of struggle, but think about your financial future before you do so.
Pay off debts costing 10% or more before you invest in retirement.
Emergency funds are more important than ever, and nobody denies that retirement funds are crucial. But what if your debt is accumulating interest faster than your savings? Experts recommend taking a break from retirement contributions in order to pay off your credit cards. Once the cards are paid off, set up an emergency fund. And after you've socked away a few thousand dollars to see you through any crisis, resume your retirement fund contributions.
Too many credit cards can affect your credit.
Even if you have zero balances on your cards, some lenders and insurance companies might turn you down, or refuse to give you the best rate. That's because the economic climate has them scared that too much available credit could become a liability. That is, you could go and max out those cards very quickly, and then your debt-to-credit ratio would be ruined. It's an understandable fear in these times when many people are using credit cards to make ends meet, but that doesn't make the denials any easier to swallow.
Still, cutting up unused cards can knock down your credit score. Experts recommend keeping your available credit and simply looking elsewhere for loans and insurance. If your credit score is high enough, someone will take a chance on you.
Many people are letting their credit cards go so that they can afford to make their mortgage and vehicle payments. If at all possible, pay all of your bills for as long as you can. That way, when credit is readily available once more, you’ll be a shoo-in.
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