The pandemic has hit people hard, and the impact goes beyond health and wellness. You will probably understand the pain of financial hardships because almost everyone has borne them during the last year. The worst thing is that the financial downturn threatens to be around for the foreseeable future. If you are fortunate enough to have retained your job during the crisis, pay cuts are likely to be a reality. Business owners have suffered in their own way, with many having to downsize and some even forced to shut down. Without any doubt, the last year was financially taxing, but 2021 looks even more challenging.
Even as the pandemic seems to be under control after the widespread vaccine rollouts, making a financial comeback is still a concern. You may have borrowed a lot during the crisis, and there are good chances your credit is in a bad state right now. Fortunately, you can rebuild it with conscious efforts and the right tactics before it does long-term damage to your financial reputation. It is easier said than done, but some helpful advice can get you on the right track. Here are some post-pandemic credit-rebuilding strategies you can rely on.
Review the current credit position
While keeping track of your credit annually is a good idea, you need to be even more vigilant during a financial crisis like this one. There are chances you may have over-borrowed or missed out on payments in the last year. Even before you start working on a comeback, assess your current credit position. You can do it by getting a copy of your credit report. It will give you a good start with strategic planning because you will have a clear picture of the current position. Moreover, you can compare the report with facts such as things that went wrong during the pandemic. Maybe, you negotiated a deferred payment schedule with your lender, and it isn’t reflected in the credit report. Verify facts and ensure that there aren’t any errors. If there are mistakes, start by getting them rectified.
Reconnect with lenders
The pandemic brought a financial challenge for borrowers, so most lenders came up with relief plans to help the ones genuinely in a problem. From deferred payments to late fee waivers, relief came in different ways. But these measures came to an end within a few months. Now that you are in the rebuilding phase, it is time to reconnect with lenders and assure them that you are ready to resume the same schedule. Seek details such as interest and penalties on your deferred payments. You may save your credit from further damage by convincing the lenders that you intend to repay your debts.
Clear the dues
When it comes to building back your credit in the new normal, everything boils down to clearing the dues. It will require a great deal of planning, even if you have a regular income flow once again. You can expect to have multiple debts at this stage, so make sure that you have a comprehensive list. It should have every detail, right from the amount to interest, due dates, penalties, and more. A detailed checklist is the starting point as it can help you prepare a plan for repayment. Consider your current income and see how you can work out repayments comfortably. At the same time, ensure you do not accumulate fresh debts while clearing old dues.
Look for refinancing options
You may be great with strategic planning, but things are very different when you implement the plan. It is easy to miss out on repayments because juggling old debts is a challenge when you have current expenses to handle. You can consider refinancing options on a current mortgage and look for the lowest auto refinance rates to lower your monthly payments. It means you will have more cash to trim the extra debts troubling your score. While refinancing may lead to a temporary decline in your credit score because of a hard inquiry, it will gradually inch back to normal if you are diligent with the paybacks for the new loan.
Stay ahead of payments in the future
The most significant lesson to keep your credit in place post-pandemic and even ahead is to stay ahead of your payments in the future. An honest approach will work slowly but consistently to enhance your credit over a period of time. While you must balance your current loans with refinancing and consolidation, keep a check on future borrowings. Limiting them is the key to a comfortable financial future. At the same time, have a proper repayment plan even before you borrow because you cannot avoid it completely. Consider taking up a side hustle so that you can bring extra money to pay back emergency debts. Even better, use it to cover regular expenses so that you can avoid debt in the first place.
Refresh your budget
Surprisingly, the way you handle your budget can have a far-reaching impact on your credit. If you spend on frivolous things, you will probably require more than your income at some point. The habit also affects your saving capacity in the long run. Both ways, you become prone to borrowing to make up for the deficit or just because you do not have enough in your savings to cover the regular expenses. Right now, you must refresh your budget and make conscious choices to skip on wants and stick only to needs. The mindset will curb borrowing, and you will have fewer debts to repay. Fewer debts are a credit savior as they reduce the chances of missing out on repayments.
The new normal requires you to make smarter financial choices. They must prioritize savings and credit consolidation. If you intend to rebuild your credit and keep it in good shape in the future, borrowing should be the last thing on your mind. Instead, you must focus on paying back and closing the debts you already have. Seek support from lenders and make honest efforts to clear their accounts as soon as you can.
Ella brown works as a CFO with a leading finance company and has vast industry experience. She also has a flair for writing and often shares insights through write-ups published on leading blogs. Her writing is appreciated for its simplicity and the practical tips she offers to readers.