Aaverage rise in inflation and high interest rates, credit card usage soared between April and June, leaving credit users wondering what they can do to improve their credit scores. With the threat of a recession in the near future prompting people to put money aside and prepare for tough economic times, those still recovering from the pandemic and dependent on credit are particularly vulnerable.
“It’s been a huge problem since the start of COVID, with people getting in over their heads to the point where they can’t pay their bills,” said Jason Kaplan, president of The Credit Pros, a company credit repair, at TIME.
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The consumer price index, a measure of the cost of goods and services, has had its the biggest increase this year since 1981, reports the US Department of Labor. Since the start of the pandemic, luxury purchases have declined nationwide. Just last month, Best Buy CEO Corrie Barry made A declaration on a decline in electronics sales. A growing number of credit users are use credit to pay for household goods and basic necessitiesas opposed to non-essential or luxury items.
“In an environment where there is a need for money and resources as well as a lack of education about the long-term effects (of low credit scores), or even the short-term effects, being financially responsible and budget oriented (is hard). These are all problems we have in this country and they are getting worse,” Kaplan says. “It’s been exacerbated by COVID, by inflation, but it’s a cycle that happens in this country every 15 to 20 years.”
Why Your Credit Score Matters
Credit scoring is a numerical system that uniquely predicts a person’s likelihood of paying bills on time over the next two years, but it affects many aspects of life, according to Kaplan. A low credit score can limit a person’s ability to rent a home, apply for a mortgage, buy a car, purchase insurance, and even find a job.
“Your credit score is a completely mechanical process. There’s a formula, there’s a finite number of factors that go into your score. Overall, good credit today is more important than it seems. ‘has been over the past 10 years,” Jim Kemish, president of Sky Blue Credit, a credit repair company, told TIME. “It’s because with rising interest rates, the penalty you’ll pay for bad credit is higher than it was.”
Kemish said employers in certain fields are now looking at credit scores for job screening and if employers don’t like what they see, i.e. a candidate has a low score or a late payment on his credit file, this can affect the person. ability to get a job.
The use of credit is clearly part of American culture and embedded in most aspects of society. However, the lack of financial literacy that affects economically vulnerable people the most is closely tied to this, Kaplan explained. He added that laws such as the Credit Card Accountability and Disclosure Act of 2009 (CARD), which reduced predatory lending by regulating fees, improving consumer disclosure and protecting young consumers, included still many shortcomings and that people had to be careful.
“We’re in an economic environment here in the United States where people generally get things before they can pay for them. It’s buy now, pay later. In a good way, it’s one way America is one of the leading economic nations in the world where everyone seems to have the opportunity to borrow, invest and grow,” Kaplan says. “There are positives and there are negatives.”
How to improve your credit score
The two experts recommend techniques people can use to improve and maintain a high credit score, including paying bills on time, especially when it comes to collections, aiming to use only 20-30% of their credit limit and check their credit report regularly.
“The largest part of your credit score, which is around 35%, is your payment history. My advice is first and foremost to always pay your bills on time,” Kaplan says. There are minimum payments you can make with credit cards or sometimes even services.”
Kaplan also said having a well-balanced mix of credit for different purposes is essential.
“The idea is that if you have a good combination of credit, a credit card, a mortgage, car payments, a loan from a bank, having them all (implies) that you are a refined and successful adult who lives the good life, as far as credit score goes. You’re less at risk because you’ve participated in all of these institutions,” Kaplan says.
Some consumers worry that checking their credit score could have a negative impact, but Kaplan explained that consumers are allowed to withdraw their scores as much as they want, also known as a soft inquiry. However, when third-party companies obtain a consumer’s score, it is a difficult investigation and a large number of difficult requests over a limited period of time can lower your score, so it is important not to search too often for loans or new lines of credit.
It’s also important to check your credit report often to make sure there are no errors, as they are much more common than you might think.
“Get all three credit reports. Read them over carefully. If you’re confused, hire a credit repair company to help you figure out what you’re looking at,” Kemish says. for your score. If you find something that doesn’t belong to you, if you find an old paid account that still reports a balance, you should dispute it. If you’ve ever had a collection that you paid for, don’t trust the collector to report it as paid.You should keep an eye on your own credit file.
If you ever have a bill to collect, paying it is essential, but you can try to negotiate the bill for a lower price, especially if it’s an old bill from a few years back, Kemish said. Both experts stressed the importance of having an emergency fund for rainy days and trying to save a little money each month, but acknowledge that this is not feasible for everyone and is much more difficult for those who live paycheck to paycheck or are deeply in debt. .
“Money in the bank is power. The power to pay your bills on time, the power to cover emergencies that arise, the power of knowing you can take a vacation if you want without increasing your balances. accounts payable,” says Kemish.
Everyone’s financial situation is different and what matters most is being aware of how you use credit.
“It is important that everyone has compassion for their own situation. No one should feel guilty for falling behind,” says Kemish. “Just try to make smart decisions and when it comes to your credit, the most important thing is to be aware of the connection between your credit score and your life. buy anything you want and suddenly disconnect that from your ability to find a job and move on.
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