In a recession, life can be unpredictable. That’s why it’s essential your finances are ready to take on whatever comes your way over the next few months. To help you prepare, we’ve put together this quick guide on how to protect your credit score in a recession.
1. Let lenders know as soon as possible if you can’t make a repayment
Sometimes, even the most financially savvy of us hit bumps in the road. If you realise you’re not going to be able to afford your next loan, credit card or mortgage repayment, let your lender know before you miss it. Not only does this give you time to work out a solution with your lender, but it means you’re less likely to record a missed payment on your credit file.
2. Keep your credit utilisation low
Got a few credit cards on the go? While this can be great for your credit score when used little and often, try not to let short term debts build up. Sudden life changes could leave you stuck with a hefty credit card bill, leading to missed payments and a drop in your credit score. Stick to using only 30% of your credit limit and only spend what you can afford.
3. Don’t let existing debts spiral
If you’re only making the minimum payments on your credit cards, you might find the amount you owe is rapidly building up. Take back control before it spirals. You could give yourself a few months breathing space by transferring the amount to a 0% interest credit card, or if you want to start actively clearing your debt, pay it off with a debt consolidation loan.
4. Create an emergency fund
We know – saving money is easier said than done. But if you think there’s any way you can start putting a little aside each month, you’ll have a financial buffer should disaster strike. This can help with any mortgage, loan and credit repayments you may have and protect your credit score from missed payments.
5. Check your credit reports and flag any errors
Unfortunately, fraud rates have risen 33% during the COVID-19 pandemic. Make sure you regularly check your credit reports and flag anything that doesn’t look right. You can get errors on your credit report removed by contacting the relevant credit referencing agency, ensuring there isn’t a lasting effect on your credit score.
No matter your circumstances, making sure you’re in as financially strong position as possible is always a good idea. If you’d like a clearer overview of your financial situation, as well as personalised insights and credit coaching to help you improve your finances, you can access it for free in myfreedom.
Want to check your current debt consolidation loan options? Fill out our quick application form to check your loan offers in just a few minutes. This won’t affect your credit score. Need more advice on improving your credit score? Take a look at our article on 5 easy ways to improve your credit score.