While it’s easy to relish in the good times, it’s vital to always prepare for the worst, including times of a weakened economy. It’s the unfortunate truth that when there’s an economic downturn, there are often job losses and salary cuts. It’s a smart idea to establish an emergency fund when you’re financially stable, however, maintaining a high credit score is important in the event you need to take out any sort of loans, or new credit cards.
How Credit Scores are Determined
It’s helpful to know how the three main credit bureaus determine your credit score. There are many factors that make up your score, but the two biggest ones are:
1. Your past history of on-time payments
2. Any amount you borrowed, and how much you paid off.
The key to building and maintaining your credit score is to make your monthly payments on time, every time, and pay off any borrowed amount as soon as possible to avoid any interest charges.
Should You Change Spending and Saving Habits?
The question if you should change your spending when the economy weakens really depends on a few factors. Here are some questions to consider:
1. What are your current spending habits?
2. How has your income been effected?
3. Do you have any current loans?
It’s important to assess your current situation along with your short-term and long-term goals. Financial calculators are an easy way to evaluate your current finances and spending habits in order to make the best decisions for yourself and your goals.
Ways to Maintain Your Credit
Obtaining a good credit score deserves a big pat on the back because it is easy to let it take a dive for the worse. Once your credit score goes down, it can be difficult to raise it back up. Make sure to take the right steps to keep your credit score at a good number in the event you need to take out any sort of loan, or apply for a credit card.
1. Always make your payments on time. Making payments on time shows a willingness to repay debt, and allows you to avoid any late payment fees. This includes credit card bills, loan payments, and medical bills. It is important to not borrow more than you can eventually pay back, but if you find yourself in an unexpected financial situation, consider calling your financial borrower. They often establish relief programs and rules during economic down turns that could help you out.
2. Do not max out your credit cards. Maxing out a credit card shows a high utilization, which impacts your credit score. Try to create an accurate budget and see where you can cut some costs before having to spend your maximum on a credit card.
3. Avoid multiple credit inquiries in a short time. When you apply for a new line of credit, loan or credit card, these inquiries can impact your credit score. Be wise about how many places you are borrowing from at one time.
For more helpful information about credit score check out the following articles.