How “Putting Your Head in the Sand” Hurts Your Credit
Yes… following the economic downturn of 2008, most of us felt a pinch in our bank accounts. Whether it was the result of a loss of employment, loss of business, or lack of salary raises or bonuses, the recession made it hard for many of us to keep up with our financial obligations. If this includes you, don’t worry – you aren’t alone!
Unfortunately, many of us feel embarrassed or scared about our economic situation, or we simply don’t know what to do when money is tight and we can’t make our payments on time. As a result, many of us often end up ruining our credit by doing the worst thing possible: nothing at all.
In most cases, problems with paying your bills on time can be easily addressed. Most creditors – including the IRS – will work with you to develop a more affordable payment plan if you simply give them a call. You might get a small notation on your credit report regarding the payment plan, although many creditors will make no adverse marks at all. More importantly, you will avoid the most damaging consequences of late payments or default, which may include court judgments, negative credit reports, and harassing phone calls and letters.
So, how do you achieve these compromises and avoid damaging your credit? First, find your bills and figure out all of your due dates. Some bills have grace periods for payment, including up to a few days past the due date. However, if you are unable to make your payment on time, pick up the phone and call the creditor’s customer service line. Explain your situation (lost job, emergency expenses, etc.) and ask if there is any way to work out a payment accommodation. Most creditors will have options for situations just like yours, and they will be happy to help you take advantage of it, often with little or no paperwork or effort on your part beyond the phone call.
In some situations, you may be required to fill out an application or provide information about your circumstances. This is particularly true for larger balances, for which you will require more significant accommodations. Fill out the forms quickly, completely, and accurately and return them as soon as possible. Remember, the sooner you give the creditor the information needed to review your situation, the quicker you will be granted the accommodation and be less likely to receive a negative mark on your credit report.
Even if you are great about paying your bills on time, you still need to be proactive about protecting your good credit reputation. Errors and stolen identities can lead to enormous black marks on your credit report through no fault of your own. As a result, you need to check your credit report and monitor your credit score on a regular basis, whether you think you may have credit problems or not. Remember, by law you are entitled to a free copy of your credit report each year. You should request one from each of the three agencies – Equifax, Experian, and TransUnion – as they all contain different information. We recommend www.annualcreditreport.com.
Finally, the best way to avoid credit problems is to avoid living beyond your means. Reduce your expenses and set a budget for yourself to avoid any future financial emergencies. If you have already damaged your credit and need to start rebuilding, consider obtaining a secured credit card from OneUnited Bank. With UNITY Visa, a secured credit card, you make a deposit in an amount equal to your credit limit. Transactions are reported to the 3 major credit bureaus just like a regular credit card, making it a great way to improve your credit score.
For more information on ways to avoid damage to your credit score and ideas on rebuilding credit with a secured credit card, stop by a OneUnited Bank branch, visit our www.unityvisa.com, or call us at (877) 663-8648.