Tips for Improving Your Credit Score in a Recession

Even if you’ve lived under a rock for the last several weeks, chances are you know that the economy has taken a dive. Stocks have plunged, credit is tight, and economists are predicting some gloomy months ahead. Most people believe that either we’re already in a recession or we will be very soon.

Now that we have the bad news established, let’s focus on some positive things — like a few tips that you can use to improve your credit score. And just so I’m clear, the economy doesn’t have to tank for these tips to be of use to you. Your credit score is your credit score, and for the most part, how it’s calculated doesn’t changed based upon the rise, or fall, of the economy.

Your credit score is broken down with approximately 35% of your score being based upon your repayment history and 15% of your score based upon length of credit history. Another 30% of your score is based upon amounts owed (e.g., accounts with balances, amount owing on accounts, etc.), with another 10% based upon the types of credit used and the final 10% based upon any new credit you may have.

With that said, focus on the things that you can do to influence your credit score.

1. Pay your bills on time. Although it’s hard to do if you lose a job, paying on time is very important to keep your score in good shape.
2. Keep your credit card balances low. Don’t use those cards. It’s tempting, especially when money is tight. But keeping that debt-to-credit-limit ratio low will help keep your score in good shape. It will also prevent you from being burned if your creditor lowers the balances on your revolving accounts. For example, if you owe $1,000 with a $4,000 limit, you’re only at 25% of your available balance. However, if your creditor lowers the limit, as some are doing now, then it drives your ratio up and your credit score down. Keep paying down those balances.
3. Don’t open new accounts. Don’t be tempted to go get that new car because you think credit is going to be tight in a few months. If you don’t have to have it, don’t get it. Tighten your belt — in the long run, you’ll be glad you did.

Recessions, especially this one, can be scary. However, by planning ahead and cutting back, you can get through it. If things get sideways, call your creditors, and try to work something out with them. It might not save your credit score entirely, but it will help some and save you a lot of aggravation in the end.

Tags: credit score, recession and credit

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