How to Keep an Emergency from Hurting Your Credit Score

How to Keep an Emergency from Hurting Your Credit Score
David Andrew
By: David Andrew
Posted: October 8, 2013's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

In a perfect world, everything would go smoothly. In the real world, sometimes you get hit with a financial emergency.

You could lose your job, have to pay medical bills or need to make expensive repairs to your car or home.

When you are in a tough situation, it is important to keep a clear head and avoid making mistakes that will damage your credit score. Otherwise, you could put yourself in an even worse situation for today and the future.

There are a few steps you should take to keep an emergency from hurting your credit score.

1. Keep paying your minimum payments.

When money is tight, it is tempting to just completely stop paying your credit card bills. However, this can be a big credit mistake.

Each month, your credit cards tell you the minimum amount you need to pay. If you do not pay at least that much, you will be charged a steep late fee and the missed payment will be reported to the credit agencies.

You do not have to pay off your full balance each month during your emergency, but be sure to at least make the minimum payments. This will keep your score strong and leave you with more financial options.

2. Avoid maxing out cards.

Another common mistake during a financial emergency is to max out your credit cards. This is also a problem because a large part of your credit score comes down to your utilization rate.

This is the ratio of your outstanding balances to your total credit limit. If you max out your cards, it brings up this ratio and hurts your score.

Instead, if you need to rely on credit for now, try to apply for another credit card and extend your limit so you do not have to max out any of your accounts.

“One missed payment can

drop your score by 100 points.”

3.  Look for a zero percent introductory rate.

There are many credit cards on the market today that offer a zero percent introductory interest rate for the first year or more. During this time, you will not owe any interest on your unpaid account balance.

This can be a useful breather while you are sorting out your financial emergency.

It may even be worth rolling over balances from your other cards onto the zero percent rate card so you get a full break from interest. Hopefully once this introductory period ends, you will be in better shape to pay your bills.

4. Seek other short-term income.

Another way to get through a tight financial spot is to seek out some short-term income.

This can work while you are looking for a new job or need help paying for bills that exceed your budget. Many retail and commission based jobs let you work on a part-time schedule.

You can use the little bit of extra money from these jobs for a few months until you are ready to get back to your normal work schedule.

5. Build an emergency fund.

Ideally, the best way to deal with a financial emergency is to have an emergency fund. This is money you can access quickly to help pay unexpected bills.

Financial advisers recommend that your emergency fund be equal to three to six months of your monthly living expenses.

It is much easier to access this money than to be stuck in a cash crunch. Hopefully you have some savings for this emergency. If you do not, try to use this as motivation to build an emergency fund as soon as you are back on your feet.

A financial emergency is tough to deal with in the best of circumstances. Do not make things worse by letting the problem damage your credit score. Use this advice and you will get out of this situation in better financial shape than ever.

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