The crisis unleashed by the Coronavirus pandemic has turned the economy of the vast majority of American families upside down. Given the lack of income and liquidity, many people have started using their credit cards for different things. How does this affect your credit history?
The use of credit cards to pay the rent of an apartment is an upward trend that accompanies the coronavirus pandemic. The latest housing report from the Center for American Progress explains that Zego, a technology company, has reported a 31% increase.
Paying the rent with a card can suppose that a good part of the line of credit is used, surpassing what is considered prudent and causes very high balances to accumulate, not to mention that if these are maintained, the rent becomes more expensive.
If that happens, the credit score that determines what risk you have as a creditor is negatively affected and a higher risk complicates or makes it more expensive to take loans.
But doing something that hurts your credit seems almost inevitable in this scenario. In fact, Bankrate recently showed a survey that says that 33% of cardholders have done something that hurts their credit.
The most recurring mistake is accumulating debt. 17% have done so, mainly because household income has been negatively impacted, and 8% are maintaining a balance in the accounts because they mistakenly believe that this helps them show a history of payments and therefore improve their credit score.
12% have paid a bill late and 6% have not even paid it. Furthermore, there are those who - wrongly - have canceled a credit card to improve the score.
What should you do?
1) Pay on time, at least the minimum balance.
2) Try not to have balances on your cards from one month to the next. Pay what you owe. If you have no choice, do so below 30% of the total line of credit and be sure to lower that percentage.
3) If you cannot do this, ask the card issuer for help, if it is not requested they will not offer it. They can then give it to you or not, but it isn't penalized.
4) Keep cards active. That extends the line of credit you have even if you don't use it. If the payments on that card you want to close are good, it stops showing a good history that can be of help.