Credit Cards and the Pandemic

For a lot of people during these uncertain times our new best friends are Amazon Prime, Grub Hub, Door Dash, and all the delivery drivers, etc. They come to our door two to three times a week bringing up groceries and household needs. In some cases, we may even see these people more often than friends or family. We bake them cookies and treats to show our appreciation for how they make our lives easier and safer. However, by depending on these wonderful services, we are also depending more on our credit cards.

Those pesky credit card balances can add up in a hurry. And, if you are someone among the thousands of others who have had their work hours cut or have lost their jobs altogether, it might be hard to even make the minimum payment on those cards, which can be extremely detrimental to a credit score. Twenty dollars here and $30 there can quickly add up to thousands of dollars in credit card debt.

Revolving balances (which are what credit cards are considered) make up about 30% of credit scores. Depending on how many revolving balances you have and the amount of those balances, they can end up having more of a negative effect on a credit score than even a late payment can!

There are however proactive things that can be done to counteract at least some of the damage:

  • Call your credit card companies and ask for a credit limit raise. Optimally a person wants to keep their credit card balances at below 10% of the high credit. Most credit card companies will agree to raise the limit one time a year as long as payments have been received on time.
  • Ask them to lower your interest rate. Again, most companies will agree to do this once a year as long as they have received prompt payments each month.
  • Try to only use one credit card and use the one that has the lowest interest rate. You do not want multiple cards with balances. Having said that, it is important to always keep at least a small balance on one credit card. Having no revolving balances can actually have a negative impact on a credit score. It is also important to note that even if you are only using one credit card but have several, DO NOT close any of the other cards. This can also negatively impact the credit scores. Keep them open, just refrain from using them.
  • Try to make several credit card payments a month if you can. Hopefully, this will add up to more than the minimum payment that is owed.
  • Strive for the AZEO method – All Zero Except One. This is an acronym that is being thrown around a lot right now in the world of credit. The goal here is to have a zero balance on all credit cards except one.
  • Look at doing a balance transfer. If you have several credit cards but one has a very low interest rate, ask about transferring the balances from your other credit cards to the one with the lowest interest rate. It will also help if that one credit card has a high credit limit.
  • In these trying times it is easy, yet sometimes necessary, to rely on credit cards, just be mindful of your spending. Little amounts can add up to a lot of debt. There are many ways to minimize any potential damage by just approaching it the right way.