Unusual times call for unusual advice, which is why I’m now saying something I never expected to while doing my job:
Go out and use all of your credit cards.
Before you start thinking I’ve lost my mind after weeks of social distancing alone in my work cave, let me explain that the advice has nothing to do with racking up debt and everything to do with protecting your available credit and credit score.
Credit advice right now is anything but standard; here are four protective steps that every consumer — but especially those fearing and/or facing potential financial hardships — should be taking now.
1. Use all of your credit cards, especially the ones you normally don’t.
When times get tough, lenders go turtle. Banks and credit-card issuers aren’t taking all new credit offers off the table, but they are cleaning up their books.
“Historically, the first cards banks cut are the ones that are rarely if ever used, just because they’re not making any money off of them,” explains Matt Schulz, chief industry analyst at CompareCards.com. “So if you keep a card for traveling, for emergencies, as a back-up and you haven’t used those cards in a while, using those dormant cards now is a good idea.
“Don’t spend more money, just shift some purchases around over a couple of cards instead of focusing on one,” he adds. “You can put the expense on and then pay it off right away, but showing that you still use the card is a good idea.”
In the standard credit-card agreement, issuers must give a six-week notice before changing interest rates, but typically they can reduce your credit limit or shut down a card that hasn’t been used without prior warning.
If your credit limits are cut or eliminated and total available credit is reduced, that changes your “credit utilization,” the second biggest factor in calculating credit scores. It’s the percentage of credit you have access to that you are actually using, and lenders generally want to see it below 30 percent.
Comparecards.com research shows that the average American household had roughly $6,800 in credit-card debt entering the coronavirus pandemic, with about $26,500 in available credit, making for a credit-utilization rate of roughly 25 percent.
Squeeze that average consumer’s available credit by eliminating just $5,000 from limits or in unused cards and the utilization rate goes past the 30 percent threshold, gouging the consumer’s credit score and reducing credit options.
Since active card use makes you a more-attractive customer, get the cards you use for emergencies, travel, back-up and such out of the mothballs.
“If you might need the credit, make sure you still have access to it,” says Ted Rossman of CreditCards.com. “Spread your purchases around on your cards right now; issuers want to see that you’re using them, it’s important right now.”
2. Check your credit report.
The Big Three credit bureaus – Equifax, Experian and TransUnion – are offering consumers free weekly credit reports through April 2021 as a protection from financial hardship created by the coronavirus.
Access the free reports at annualcreditreport.com.
There’s no reason to check weekly, but monthly – especially if you’re asking card issuers and lenders for forbearance – makes sense.
“If you need financial help and call lenders to ask for payment relief or to ask if they will stop the interest clock, be sure to ask if their assistance will show up on your credit report,” says Gerri Detweiler, education director for Nav.com “Don’t assume they’re giving you both payment and credit relief – even though most are — because if they let you skip payments but report anything to the credit bureaus, it could hurt your credit score.
“Even if they tell you they’re doing the right thing, check your credit report to make sure,” she adds.
Review your credit report looking for inaccuracy, mistakes and areas you can improve.
Make sure your name and all addresses are correct; a wrong address – where you never lived – or misspelled name could be a sign of fraud. Be sure you recognize all accounts; if you don’t know why a lender is listed on your credit report, that’s a warning sign.
Examine payment history, especially with any lenders who give you forbearance or deferred-payment plans.
Pursue corrections for anything you even think is wrong; when in doubt, challenge the item and let the lender prove to the credit bureau that the problem is real. If they fail to step up to show that the details are right, they red mark will be removed from your report.
3. Boost your credit score in a matter of minutes.
Credit reports are the basis for credit scores; it is more important to know the information that’s used to calculate the score is right than to know your score itself, but most consumers want to know where they stand. Many card issuers and banks offer customers their credit scores for free. It’s never a bad idea to check; any significant, unexpected change should send you back to the credit report to figure out what happened.
Experian Boost is a free service that looks at a consumer’s payment history on bills that are not part of the credit report. It considers your payment history with utilities, cell-phone companies and the alike; good histories earn extra points.
It’s available at Experian.com/boost.
Says Rossman: “It won’t hurt you and if you can take an easy win that’ll boost your credit, now is a good time for it.”
4. Check on card rewards before you lose them.
While most loyalty programs are extending expiration dates, consumers facing financial distress could lose their rewards by missing a payment or entering a deferment program.
“If you see that falling behind in payments is even possible on a rewards card, use the rewards before that happens,” says Detweiler. “Know if you lose the rewards if your payments are missed or you default; if you don’t know, get something of value for your points before they become one more thing you lose getting through this pandemic.”