Dear Money & Crisis Reader,
Yesterday, we were discussing the 100,000 people who were trapped in New Orleans during Hurricane Katrina.
Some of the folks who didn’t make it out of the city were physically unable to leave because of illness or disability.
But for many others, it was a purely financial issue.
Ultimately, without an emergency fund, your escape options are severely limited in a disaster scenario.
What about a credit card?
Taking on credit card debt in a crisis can be risky. You have no idea how long it will be before you’ll be in a position to pay it back.
And it won’t be long before you start racking up the interest on your debt.
But when the alternative is catching front-row seats to a Category 5 hurricane, I think you can stand to take on a little debt.
Yet that wasn’t really an option for these folks, either.
According to a survey carried out just six months after the hurricane, 68% of those left behind had neither money in the bank nor a useable credit card at the time.
Let’s cover one of the main reasons why – and how you can avoid falling into the same trap.
The Number That Follows You Everywhere
One thing that can severely hinder access to a credit card is your credit score.
If you have a bad credit score — like many of the folks left behind — you may not be approved for a credit card at all.
Or if you do get approved, that credit card will likely have low limits, high interest rates or crazy fees.
Not ideal for trying to survive in a crisis situation.
And that’s not all. A bad credit score will follow you everywhere you go, making everything from renting an apartment to getting a job more difficult.
I will say I don’t particularly agree with credit scores as a general idea.
But it’s the system we’re stuck with. So it’s going to make your life much easier if you stay on top of it.
Now, if you’re already saddled with a rotten credit score, don’t worry!
It happens to the best of us. And you can take steps to start digging your way out today.
Credit Boosting Tip #1: Claim Your Free Credit Report
The first step to repairing your credit score is checking your credit report, which is a detailed account of your credit history.
This is a vital step because your credit score is calculated from the details in this report. But according to a study conducted by the Federal Trade Commission, one in five consumers has at least one error on their credit report.
Double-check to make sure:
- All of your personal information is accurate and up to date
- There are no incorrect listings for late or missed payments that you remember making on time
- There are no accounts listed that you didn’t open.
Once a year, you’re entitled to one free credit report from the three nationwide credit reporting companies — Equifax, Experian and TransUnion.
You can claim your free credit report by clicking here. Beware other websites that claim to offer “free credit reports,” as they often come with hidden costs.
Credit Boosting Tip #2: Pay Your Bills on Time
Paying your bills isn’t a sexy, quick-fix solution… but it is a good one.
Late payments, even those overdue by a few days, will negatively impact your credit score. While consistent on-time payments will only push your score higher and higher.
Don’t worry if you have a history of missing payments. Once you establish a pattern of good payments, you should start to see an improvement in your score.
Credit Boosting Tip #3: Use Your Credit Card (Responsibly)
Once you have a “fair” credit score (above 650), you’ll be eligible for a variety of credit cards without sky-high fees or interest.
But why stop there?
A credit card can be a valuable tool for boosting your credit score even higher.
Purchasing items on your card and paying off your balance at the end of the month is one of the fastest ways to establish a history of good payments and increase your credit score.
Having said that, never forget that a credit card is a double-edged sword.
Missing payments will severely damage your rating. So make sure you’re buying only what you can afford to pay back immediately.
Follow these three tips and you can kiss your credit score worries goodbye.
All the best,
Editor, Money & Crisis