When It's OK to Let Your Good Credit Score Drop
BY BEV O'SHEA
If you’ve worked hard to achieve and maintain a good credit score, it can be upsetting to see it drop. But “life happens, and sometimes how you react is going to blow back and affect your credit score,” says credit expert John Ulzheimer. People lose jobs, cars break down and pipes leak. Credit may be your safety net. Painful as it may be, there are times when taking actions that hurt your score are prudent for your overall finances.
WHEN YOU HAVE AN EMERGENCY EXPENSE
If you have a big, unexpected expense that exceeds your emergency savings, using your credit cards to cover it can be a decent option. You may have some temporary score damage from having a high balance on your card for a while. It’s generally best to keep balances below 30% of your credit limit, and of course, paying in full every month is ideal. But the damage from a high balance should fade as new, lower balances are reported to credit bureaus. Don’t beat yourself up for not having saved enough. Emergencies don’t necessarily match up with when you’ve saved enough, nor do they come one at a time. Cary Siegel, the author of “Why Didn’t They Teach Me This in School?”, strongly recommends developing a budget and building an ample emergency fund so you’re protected in the future. WHEN YOU'RE STRUGGLING TO COVER ESSENTIAL EXPENSES Sometimes a crisis, such as income loss, makes it impossible to cover living expenses. Then, sacrificing a credit score is the lesser of two evils, Ulzheimer says. If you have to choose between paying your credit card on time and keeping the utilities on, keeping your family safe is more important. If possible, try to make the minimum payment on your credit card before it’s 30 days overdue. Your credit card issuer won’t be happy and you’ll probably have to pay a late fee. But creditors can’t report you to the credit bureaus until your payment is 30 days past the due date.
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