Tuesday, March 17, 2009

Guest post: Safeguard your credit history more than ever

The credit squeeze and economic crisis that started unfolding in late 2007 and continues to worsen has created what can be likened to a "perfect credit storm". Gigantic losses and “write downs” in subprime mortgages have had a cascading, domino effect that has impacted even the most credit worthy businesses and consumers. Because of this turmoil in the credit markets, banks and credit card issuers have been forced to shut off their supply of credit to even their most-trusted, well-established businesses and customers. Small and large businesses alike have had their credit lines severely limited and some have even been cut off entirely. In fact, even McDonald’s Corp., the world’s largest restaurant company, can’t get access to credit for their U.S. franchisees who are seeking ways to finance store improvements. In late 2008, Bank of America cut off lending to McDonald’s franchisees citing “volatility in the debt markets” for the shortfall in available credit. McDonald’s has since advised its franchisees to seek out other sources of financing.

For small business owners, access to credit has suddenly become very difficult as well. “I had a $60,000 credit line with American Express that was cut off completely,” says Craig Wilson of Silver Springs, MD. Wilson, who has run his own online marketing agency since 2003, was a long-term customer of American Express with superb credit. He used the credit line frequently but only for small, short-term cash flow needs. “I never missed a payment, my credit is stellar and now I can’t get any credit? This is totally insane.”

Stories like Wilson’s continue to cast a dark cloud over a huge number of even the most profitable, well-established businesses everywhere. The problem only seems to be growing worse every day and the need to safeguard your credit history has never been more important. So what can we do to protect ourselves from this perfect credit storm?

While credit is harder than ever to secure, we’ve outlined a few simple steps that you can take for yourself or your business in order to safeguard your credit history and score.

Check your credit report twice a year. The old rule of thumb about checking your credit report was to do it once a year. These days, you’d be better served to check your credit report at least twice a year, and better yet, even once a quarter, if you can. Because of all the restrictions in the credit markets and the wild fluctuations in availability, monitoring your credit report and your credit score has never been more important. You need to check your credit reports at least twice a year and take immediate action on any mistakes or errors that are impacting your score. Protect and defend your credit score with your life!

Keep your credit accounts active. Keeping your credit active is extremely important these days as lenders are being forced to parse out credit selectively. “Inactive” accounts in particular are being targeted and closed down aggressively by credit card issuers. Even though you might not be using your old credit card accounts, you credit score can be severely damaged if one or several of these accounts are closed for inactivity. When these accounts are closed, your total available credit plummets and your so-called “credit utilization” ratio can skyrocket if you have any outstanding card balances, ruining your credit score in the process. So, be sure to keep those old accounts active with just a purchase or two each month that you know you’ll have to make no matter what, such as a gas tank fill-up or paying a monthly utility or cable bill. Keep those accounts active with a few small, affordable, necessity payments each and every month.

Keep your balances low and your payments on time. Now, more than ever, the importance of keeping your credit card balances low and making your payments on time cannot be stressed enough. In the past, a late payment on a bill of any kind was something that could easily be dealt with without any negative fallout, if any at all. These days, however, any type of negative mark on your credit whatsoever can come back to haunt you if you’re not careful. The bottom line is that you don’t want to provide the credit bureaus with any ammunition to downgrade your credit score. The best way to avoid any negative consequences is to make it your mission in life to make all of your payments on time and to keep your card balances very low. This is timeless advice, but never more important than right now.

The credit squeeze has been a huge challenge for everyone. From huge multinational conglomerate banks to the average consumer, nobody has been left unaffected by the fallout of this crisis. But there are some things that you can do to neutralize the potentially damaging effects.

Above all, consumers and businesses alike have to be more vigilant than ever about safeguarding their credit scores. Be sure to request your credit report at least twice a year and be on the lookout for mistakes or other issues that can negatively affect your credit. Next, be sure to keep those credit accounts active. Whether it’s your credit card issuer or a supplier that you use infrequently for your business, be sure to keep access to that credit alive with some very modest, affordable activity. You don’t have to go overboard, but just maintain a small credit footprint with your creditors. And lastly, be absolutely sure to make those payments on time and keep your account balances as low as possible, which is always good advice no matter what the economic climate might be.

This post is brought to you by Steve Sildon of CreditCardAssist.com. Steve writes frequently about a wide variety of credit and finance-related topics and is widely recognized in the field of personal finance, providing tips and free advice about credit card offers, rewards programs, personal loans and debt consolidation.

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