COVID-19 continues to impact all aspects of everyday life. From a financial point of view, I’d bet it has been quite some time since you received a credit card offer. During economic times like this, credit card issuers are focused on controlling risks. When the economy was buzzing along, they had more confidence in people’s ability to make their minimum payment. Nowadays, that confidence has decreased.
Here are a few tips to keep in mind regarding credit:
Be proactive, not reactive: If your household has experienced financial distress during this pandemic, reach out to your creditors immediately and inquire about what type of hardship options are available to you as a consumer. Specifically, regarding credit cards, maybe they will be willing to lower your interest rate, reduce your minimum payment, or waive late fees. You can also try this with your mortgage and auto loan payments.
Reduce your credit utilization ratio: In an effort to control risk, your credit card issuer might decide to lower your credit limit. This action could trigger an increase in your utilization ratio (credit you’re using divided by the amount of credit you have available). If you have a credit card with a limit of $1,000 and you have a $300 balance, your utilization ratio is 30%. If your card issuer suddenly dropped your credit limit to $600, your utilization ratio would then become 50%. The interesting part is that this could also negatively impact your credit score because you are now utilizing more of the credit that is available to you.
Activate Automatic Bill Pay: Most of us like the phrase, “Set it and forget it.” This is how I view auto bill pay, so I never make the mistake of missing a payment. However, I don’t believe in forgetting about any bill that takes money out of your account. This auto draft impacts cash flow and should be tracked accordingly.
Document credit related agreements: When something is not in writing, it never happened. For example, our lawn care company has treated our yard twice this year. Back in March, a customer service representative and I agreed to a one-time lump sum payment for the year. He sent an email which verified our conversation and the price. After making two phone calls, I noticed the one-time payment had not been processed. They continued to bill us for each treatment which would have cost more than the negotiated fee. On June 15, a young lady contacted me about our past due bills (four months after the initial agreement). I explained that our bill was not past due because I had proof of a pre-arranged lump sum payment. She processed the payment and was very apologetic that it had not been taken care of earlier. If I didn’t have proof of the negotiated lower price, it’s possible I would have had to pay the higher per treatment fee.
