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Money & Business

Café Dato: How to improve your credit score during the pandemic

A credit score is needed to buy or rent a house, negotiate a car purchase and even to get a job. When a single number has such a great impact on many life decisions, it's important to have the highest score possible.
29 Sep 2020 – 01:44 PM EDT
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The pandemic has affected many households and their finances. Many are having trouble paying bills and have resorted to using their credit cards to keep afloat , which could have a negative effect on their credit scores.

According to a study done by WalletHub, 87 million Americans are worried about their credit scores due to the coronavirus. Some of the most worried groups include middle-income people, the 30-44 age bracket and people with fair credit.

For those needing to boost their credit to negotiate a car purchase, getting a job that requires credit verification or renting a home, there are steps that can be taken to help improve the score.

You must first get a copy of your credit report. You can ask for a free credit report at Annual Credit Report once a year from the three main bureaus . There are also Apps and Websites like Credit Karma, Credit Sesame where you can check your score daily and it won’t affect your credit score.

Once you know your score, it is important to know where you stand in the FICO scoring system. A score can range between 300 and 850. According to Eneyvel Arias, a financial expert, a bad score is below 579 and a good credit is above 770. In the U.S., the average score is 704.

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With the report at hand, look for mistakes which could be ruining your credit and try to fix it. According to the Federal Trade Commission, as many as 5% of consumers have errors on their credit report. Credit can also be affected when you pay late, there are too many recent inquiries, new accounts, your debt to income ratio is too high and you have a high credit card utilization.

Everything matters, but credit card utilization which refers to the percentage between your credit card's balance and credit limit as they appear on your credit report has a big influence on your credit report. If you have high balances on all your credit cards for example, it tells the lender that you are taking on more credit than you can afford which makes you a risky borrower.

The rule is to try and get your credit card usage to below 30%. For example: If you have a credit card with $1,000 credit availability, only use $300 dlls of that available credit. If you are unable to do that at the moment, and you owe on that card $600, one option is to ask your lender for a credit increase. If they gave you a $2,000 credit availability and you still owed the same $600, your utilization rate would be at 30% instead of 60%.

Financial expert, Enevyel Arias, does caution on using this move with your creditor. “If you do ask for a credit increase, know that you have to be disciplined to not overspend and keep it at 30% or less," she says.

Another way to boost your credit score quickly is by registering on Experian Boost, a free platform that takes in consideration your payments to your cell phone account and other public services while only benefiting your credit. If you don’t do any payments on your checking card, then it does not hurt your score.

Lastly, if a debt was sent to collections, call the agency and negotiate a payment plan but make sure they agree to report as paid in full so that your credit does not get affected. If they report that you settled on the payment, this could have a negative effect on your credit score instead of a positive one.

Credit is not a reflection of your wealth or your morals, but rather an assessment of your riskiness as a borrower. The algorithm cannot distinguish between a job loss or a frivolous spend, that is why it is important to not spend more than you can handle at any time.

During this pandemic, there are many programs in place and many lenders are working with consumers to pause their credit-card payments for up to 3 months, lowering or waiving late fees and interest charges. You must call each of your credit cards and request the help, none of this help is automatic. If you feel that you need managing your debt, there are non-profits such as the National Foundation for Credit Counseling (NFCC) which will provide free service to help you with managing your debt situation.

The key is to be knowledgeable on what affects your credit so that you can work on it. Unfortunately as soon as there is a missed payment or banks get a sense that your financial situation is changing, scores go down very quickly and, on the contrary, the journey to rebuild a credit is slow.

If the pandemic has affected your credit, don’t be discouraged. Positive consistency will pay off. Most people with a 850 credit score have been working on their credit score for a long time. If you are not there, the good credit steps mentioned can help you get there.

This article is adapted from 'Café Dato' a digital series produced by Univision News. Café Dato takes complicated subjects and explains them in a clear, simple and conversational way over a cup of coffee.

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