Prioritizing “getting money” over building credit has to end.
Many songs praise “hustle culture” and “stacking racks,” but for most of us, the topic of building credit is almost taboo. The truth is, for many Black people, including myself, credit has acted as another chip on our shoulders. We’ve been living in a system where financial education is a rarity, and proper minimum wage is almost too far fetched. Our government has used wealth inequality and credit as a status instead of a human right- and the pandemic hasn’t made things any easier.
According to the Bureau of Labor Statistics, there were 22 million jobs lost from February to April of 2020 due to Covid-19. Today’s unemployment rate for Black Americans is about 15.4% in DC alone. Although those who lost their jobs were granted unemployment relief, for others, this was a time to penny-pinch and prioritize particular necessities. According to FICO, missing credit card payments and bills can decrease your credit score by 90-150 points.
Now that the world is slowly coming back to “normal,” it’s only natural to want to rebuild what was lost. Here are 5 key ways to rebuild your credit post-pandemic.
Check your credit score.
Checking your credit score can feel like a nightmare. I was afraid of checking my credit score for years. The feeling was similar to finding out what grade you got on a test. I always assumed my credit was the worst possible score and therefore avoided checking it altogether. However, there came to a point in my life where I had to know my credit score. To my surprise, my score wasn’t as bad as I had anticipated. Once I found out, I felt relieved and excited to build from there.
There are a couple of sites to check your credit score: Equifax, Experian, and TransUnion. You may go on these sites directly or go through your credit card company. Many credit card companies and selected banks make this information available to their clients. If you decide to go through the sites directly, each website offers a free annual credit check. Once you pull your credit history, you will see where it can be improved and take it from there.
Take advantage of disputes.
Once you begin to look at your credit report, it’s natural to see a few mistakes. According to the Federal Trade Commission, one in five people has an error on at least one of their credit reports. A few common errors are accounts reported as late or delinquent; debt listed more than once, identity theft, and accounts belonging to a person with the same name as you. If you encounter any of these errors, don’t sweat it, the credit Gods invented a beautiful gift called disputes.
A credit dispute is when a client requests an error to be removed from their report. According to the fair credit report act, once you send in the dispute(s), the creditor must investigate your claim. The fair credit report act ensures fairness, accuracy, and privacy in consumer credit files. If all goes well, the mishap will be resolved within 30 days. Successful credit disputes are free and can improve your credit score.
Pay on time.
If you were setback by the pandemic and are now getting back on your feet, try to pay on time. As mentioned, late payments on bills can significantly impact your credit score. The best way to ensure your bills get paid on time is by setting up autopay. Setting up rotating payments every month with your provider will alleviate the pressure of paying on time. Autopay is entirely free, and the only thing required is to make sure you have the correct amount in your bank account every month by the due date.
Manage your credit utilization ratio.
If you’re back in the office again or saved some money from those stimulus checks, it’s time to manage your debt-to-credit ratio. According to Equifax, you can determine your debt-to-credit ratio by dividing the total credit you’re using by the total amount available. Once you have divided your debt-to-credit ratio, this should leave you with a percentage. The percentage represents how much debt you have, which should be no more than 30%.
Suppose you have less than 30%, great! If not, then no worries; this just means you have some debt to pay off. Deciding what debt to pay off first can be overwhelming. Try to start by paying off the debt with the highest amount of interest. For example, credit cards typically fall under this category because they can have high-interest rates. You don’t have to pay off the debt in one payment, but slowly paying off the minimum amount can help so much. If you’re not ready to tackle any significant debt(s), then start with your most minor accounts. The point is to get that debt-to-credit ratio to 30% or less.
Don’t close accounts.
Silly me used to think having a credit line open for a long time was bad, but it’s beneficial. Creditors like to see that you can keep lines of credit open for an extended period. For example, let’s say you’ve had a credit card open for about 5 years. This shows creditors that you can maintain a relationship with your bank. Once you’ve paid off any credit card debt, do not close the account. Keep a credit card or two that you’ve had for a while and continue to pay it on time. Once paid off, use these credit cards for monthly subscriptions or necessities like food or gas for your car.
Be mindful of how often you apply for new accounts.
Moving forward, be mindful of how often you apply for new accounts. According to Experian, each application can lead to a hard inquiry. A hard inquiry or hard pull occurs when you apply for a new credit card or any new line of credit. Hard inquiries can show up on your credit report and affect your credit score – and why would you want to do that after you’ve worked so hard?
Having too many lines of credit can also be tough to keep up with financially. The point is to be able to manage your credit and be able to grow it further. Having too many accounts can easily put you back where you started. Once you’ve made it and have good credit, only put it towards things that benefit you. For example, buying a house or starting a business (yes, I’m manifesting this for you!). The options are endless when you’re living a life free of credit karma.
