Consumer Payment Card News

Credit Scores Sink and Stink in Wake of Unfortunate Unforeseen Events

Credit Scores Sink

Credit scores are the lifeblood of personal lending around the world and, if they fall below 660 it can become a “scarlet letter,” a sign of personal financial mismanagement. Repeated surveys confirm job loss, medical expenses, divorce, natural disasters or personal disasters are the major factors destroying a personal credit score.

Missing one credit card payment or car payment can reduce your credit score by 30 points and maxing out a credit card(s) can wreck as much havoc on your overall score. Delinquent payments and high credit utilization together comprise two-thirds of the total score.

Many in Same Boat

A brand new survey by Elevate’s Center for the New Middle Class found 55% of respondents cited job loss or reduction in work hours as the reason why their credit score dipped below 700. Nearly a quarter (24%) cited medical bills as the primary cause. Following these leading factors, a variety of typical, seemingly innocuous expenses follow, including repairing a car (11%), leaving home for the first time (6%), and putting a child through college (5%).

When asked to tell their stories of how they became non-prime, Americans’ responses to Elevate typically aligned with one of four themes: job loss/loss of income; too much debt/overspending (particularly in the past); unpaid/disputed bills/expenses; and medical related costs. Underpinning all of these causes is the fact that they are outside of a consumer’s immediate control.

Get Help Promptly

Ironically, when you are facing all this unexpected bad financial crap is when you need credit the most. Most Americans recover eventually but because of their non-prime or bad credit score are forced to pay nose-bleed levels of fees and crazy interest rates.

When it comes to job loss the long standing advice is to squirrel away six-months of earnings as a protection. The author, Robert McKinley, has shared this advice with his six children and they always respond with laughter. Can you imagine advising any paycheck-to-paycheck family to save six-months of pay?

New Loans

When faced with unfortunate unexpected events there are some basic steps to take like promptly informing your creditors. Some creditors may extend payments and/or waive interest charges for a few months. If you have a car loan apply for an extension as soon as possible. Most auto loans require the account to be current to eligible for an extension.

If your credit score has tanked there are still sources of funding for non-prime consumers, but tread carefully. Signing up for a payday type of loan or a loan from an Indian reservation is insane.

While there are many predatory lenders offering easy loans to credit impaired consumers, there are some good apples in the bunch including some major credit card issuers like Capital One and Citibank. There are also sources like Elevate and Merrick Bank. Some of the advertisers displayed on CardTrak offer good options too.

Once you are back on your feet, try to save for future unfortunate unforeseen financial hits and please don’t laugh !