When to let your good credit score drop – Times News Online

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Published on 04 June 2021 01:25 PM

If you’ve worked hard to achieve and maintain a good credit rating, it can be frustrating to drop it. But “life happens, and sometimes how you react can hit back and affect your credit rating,” says loan officer John Ulzheimer.

People lose their jobs, cars break down and pipes leak. Credit can be your insurance.

As painful as it may be, there are times when doing things that degrade your score are reasonable for your overall finances.

WHEN YOU HAVE EXTREME EXPENSES

If you have large unforeseen expenses that exceed your emergency savings, using a credit card to cover them may be a good option.

You may have temporary damage due to high balance on your card for a while. It is generally best to keep your balance below 30% of your credit limit, and of course a full monthly payment is ideal. But the damage from high balances should disappear as credit bureaus report new, lower balances.

Don’t beat yourself up for not saving enough.

Emergencies do not necessarily coincide with when you have accumulated enough, and they do not occur one at a time. Carey Siegel, author of Why Didn’t I Be Taught in School? strongly recommends that you develop a budget and create a sufficient emergency fund to keep you protected in the future.

WHEN YOU ARE AFFECTED TO COVER SIGNIFICANT COSTS

Sometimes a crisis, such as a loss of income, prevents you from covering your living expenses. Then, according to Ulzheimer, sacrificing a credit rating is the lesser of two evils.

When you have to choose between paying with your credit card on time and including utilities, your family’s safety becomes more important.

If possible, try to make the minimum payment on your credit card before 30 days delay.

Your credit card issuer will be unhappy and you may have to pay late fees. But lenders cannot report you to the credit bureaus until the due date is 30 days.

If you do not pay within this 30-day window, the lender may report that your bill is late. This negative mark on your credit report will hurt your score badly, and only time will fix the damage.

It will stay on your credit report for up to seven years, although the effect will wane over time.

Siegel advises contacting creditors and explaining what happened when you got back on your feet and how you plan to pay them back.

They may want to give you more time so you can prevent damage from possible delay in payment or negotiate a lower interest rate, he says.

And the question won’t hurt.

WHEN MONEY IS ON THE WAY

Siegel, the father of five young men, warns against over-reliance on credit. But he is ready to make an exception for cases when income is inevitable, and invoices have already been sent. Tax refunds or freelance pay falls into this category.

If you know money is coming, credit can be a bridge until it comes. Expect to have a high credit card score and then look for a bounce when it comes back.

WHEN STARTING OR INVESTING IN A BUSINESS

Investing in a business is another case where you can use your credit, but be aware of the risks. Siegel says there needs to be a clear, detailed business plan that is much more specific than a great idea.

A good or excellent credit rating may mean that you are eligible for an initial 0% credit card rate. Or, you may have enough room on your existing credit cards to temporarily increase your balance than usual.

“It might be a scenario that makes sense if you have a plan and the ability to know when to stop it – it doesn’t work (as) I intended,” says Tom Quinn, vice president of FICO Scores. , a credit appraisal and data company.

It might be tempting to go for broke, but don’t let a business idea threaten your overall financial health.



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