I.I.I. Suggests Ways You Can Maintain Your Credit in the Event of a Job Loss, Drop in Income or Other Hardship
INSURANCE INFORMATION INSTITUTEÌý
Contact: Press OfficesÌý
New York: 212-346-5500; media@iii.orgÌý
Washington, D.C.: 202-833-1580Ìý
NEW YORK, March 26, 2009 — With more than one million layoffs projected in 2009 and a rise in company imposed pay cuts, consumers need to find ways to preserve their credit. Having a good credit history can be beneficial in a surprising number of ways, according to the ̽»¨¾«Ñ¡ Information Institute (I.I.I.). A good credit history, for instance, can make you a stronger job candidate as many employers routinely check credit history as part of their hiring process.
“An added benefit of maintaining good credit is that it may also reduce your auto and home insurance premiums, since many insurers offer good credit discounts," said Worters. “For example, a study in July 2007 by ECONorthwest shows that, in Oregon, auto insurance policyholders with a favorable credit-based insurance score paid as much as 48 percent less than they would have paid without the insurer’s use of credit information, providing an average annual savings of $115. Similarly, homeowners policyholders paid an average of $60 less."
Credit problems can develop quickly following the loss of a job, after an extended illness or as a result of other hardships. However, some people may develop credit problems simply because their spending consistently exceeds their income.
There are various strategies consumers can take to manage their bills if they have lost their job, had a reduction in salary or are concerned they may soon be part of the growing number of people affected by layoffs this year. These include:
- Pay bills on time. The single most important factor that affects your credit is your record of paying bills promptly. Late payments and delinquent accounts can have a major negative impact on credit scores as well as giving creditors the right to increase your interest rates. The number of delinquent accounts and the length of time the account went unpaid also factor into the calculation. The goal should be to maintain a long history of reliable bill paying behavior.Ìý
- Review your credit report to make sure it is accurate. Dispute any inaccuracies or outdated items. A small error may not have much effect, if at all, on your score. If an error is significant, however, it can make a difference. Reviewing your credit report will also reveal any suspicious activity on your credit cards, which can be an early indicator of identity theft (which frequently increases when there is an economic downturn). If you do find an error, you have the right to dispute any information in your credit report. By law, the three major credit reporting agencies must provide you with one free copy of your credit report annually, and must correct inaccurate or incomplete information at no charge to you. The three national credit reporting bureaus are: , and . Consumers can order their credit report from each of the three major credit bureaus at one time via the .Ìý
- Limit yourself to a maximum of three or four credit cards. Resist the temptation to open new cards in order to get discounts on store purchases or other one-time benefits. This can have an adverse affect on your credit rating—a large number of new inquiries on your report will make lenders think you are planning to run up a lot of debt and can affect your score.Ìý
- Research the Annual Percentage Rates (APR) when applying for a credit card. The APR on a credit card can vary depending on your credit. Also, watch out for introductory APR offers, which often expire after a certain time period, and the APR for cash advances which can vary significantly. Some credit card companies charge a fixed rate, which means your APR can change, but only with a specified number of days notice. Other cards have variable interest rates, which change based on how interest rates are doing in general. Rates can also increase (known as a penalty rate increase) if you make a late payment, exceed your credit limit or bounce a check. While APRs are not currently reported by credit card companies to credit bureaus, and therefore cannot be explicitly considered when computing your credit score, it is in your best interest to pay off your balance in full each month as those high-interest charges will stay on and keep racking up.Ìý
- Keep balances low and do not close established credit cards. Use no more than 30 percent of your available credit at any given time. If you decide to control your credit card use by cutting up a credit card, do not close the account as this will raise your balance-to-credit-limit ratio and can have a negative impact on your credit score. Credit scores are based on factors including payment history, amounts owed, length of credit history, new credit and types of credit used. For example, major bank credit cards with good payment records are better for your score than department store cards, which generally carry a low credit limit.Ìý
- Pay off cards with higher interest rates first. By doing so, you are saving money on interest and you will pay off balances sooner.Ìý
- Do not neglect rental or utility bills. While rental and utilities payments are not listed on your credit report, if you are late on these bills, your landlord or utility company has the right to report your bills as delinquent to the credit bureaus. If the bill continues to go unpaid, a judgment could be obtained against you in small claims court, and/or your account could be turned over to a collection agency. Any of these blemishes to your credit report can be as harmful to your credit score as the more commonly reported items such as late payments on loans or credit cards.Ìý
- Deal with creditors and financial problems quickly. If you cannot afford to pay off your credit card balance, at least pay the minimum on all of your cards. Paying the minimum will keep your accounts in good standing even if you are not able to allocate much towards your balances. Be sure to contact your creditors as soon as problems arise—you might avoid a “bad debt" report to the credit bureau. If you own a home and are having trouble keeping up with your mortgage and loan payments, contact your mortgage lender as soon as you realize that you have a problem with making payments. Find your loan documents and read them so you know what your lender may do if you cannot make your payments. Learn about the foreclosure laws and timeframes in your state–every state is different–by contacting the State Government Housing Office. For more information contact the .
For a related audio file, go to Maintaining Good Credit Reaps a Variety of Financial Rewards.Ìý
For a backgrounder paper on credit and insurance, go to Issues Updates: Credit Scoring.
For more information on insurance, go to the I.I.I. Web site.
Additional Resources
Ìý
Ìý
The I.I.I. is a nonprofit, communications organization supported by the insurance industry.