People earn to have financial stability and hope for economic power in the future. Surely, it is the only way one can thrive on living a better life. And, for the exact purpose, we make investments via bank savings or simply purchasing a credit card. However, with earning comes spending.
Yes! A good everyday routine demands you to make payments for daily necessities. But not all of us are good planners and spenders. In fact, unexpected circumstances like covid-19 and pandemic can make the situation even worse.
When it comes to productive credit utilization, there are two types of groups:
- Non-Strategic: People who like to stress at the end of the month when they have nothing to use for fulfilling basic requirements
- Strategic: People who opt to follow certain ‘strategies’ that we call ‘credit utilization methods’ to help them save money with effective buying
And, people who prefer credit cards over cash payments usually fall in the first category. All the credit benefits make it difficult for them to strategize their financial uses.
Do Credit Card Users Spend More Money?
We have got several studies to back up our claim that, yes, people who use credit cards spend more money.
But, of course, it is also necessary for credit utilization. Why? It allows an efficient way of spending via online purchasing, credit cashback, marketing offers, referral offers, credit rewards, etc.
However, the reason for not being able to save even with credit cards might differ for every individual.
In fact, a study published by Forbes claims that:
“People who prefer to use credit cards for purchasing spend more than 100% compared to people who favor cash payments.”
Statistics by shift processing also explains that credit cards and online payments are undoubtedly the preferred way of purchasing
But, it also gives 84% more chance of spending compared to cash.
Moreover, numerous other reasons like poor planning and lavish lifestyle (on low income) can also stymie saving, as explained by the invested wallet.
Whatever the reason might be. Pandemic and covid-19 have really made people think about what they can do for proper credit utilization to avoid the financial chaos happening worldwide.
It was already quite hard to use credit optimally, but coronavirus has made it even harder. Before reading ways for better credit utilization during covid, let’s find out how it has affected the use of credit cards.
Covid Impact on Life &Credit Card
Since the outbreak of covid-19, the world has experienced several changes:
- Shutting down of crowded places
- Closing of popular businesses
- Unemployment
- Work from home
- Debit & Credit Debts (Click to read research by Experian on covid credit debt)
- Failed to afford basic food and other necessities
- Health issues
- Negative credit scores
And so much more. These are only a few of the covid impacts on daily lives included in a recent study by WHO.
Yes, it has also initiated the credit crisis as well. And, when it is already hard for people to live, balancing one’s credit score can be even tougher.
A ‘credit usage during covid’ survey by CNBC revealed a drop in new credit cardholders. It also highlighted that the ratio of the no credit population rose to 21% from 14%.
However, still, people were attracted to the ‘buy now and pay later’ credit campaign during the pandemic.
Credit Score Changes During Covid-19
A credit card holder shared his story on a popular forum about how unemployment due to covid raked his credit score to the worse.
Moreover, he was indebted to more than 15 late payment clearances as he had no money to pay his credit debt.
What did it do to his credit score? Yes, exactly what you are thinking!
A drop in credit score, several missed payments on a credit card, and a bad client image in the eyes of the credit company.
But, How Can Bad Credit Affect The Daily Life?
Well, you might be the least priority to quality for the beneficial rewards that are only entitled to the top credit score customers.
So, is a perfect credit score really that important? 100%!In fact, it has become a crucial way of surviving during covid.
It allows you to:
- Apply for a mortgage
- Get loan approvals
- Rent places (with min security)
- Get better insurances
- Pay less to no security deposits on the basic household
- Negotiate in the credit crisis
These credit card benefits seem even more profiting when something unpredictable happens, like the outbreak of covid-19.
Credit usage experts also analyzed the surveyed data from the top finance bureaus who published reports on credit utilization during the pandemic.
The analyses by Cardratesexplained unemployment, lockdowns, business shutdown, and financial instability has caused the credit score and balance to drop by more than 23%on average.
It was recorded as one of the biggest falls in the credit balance and score category!
So, it has become the need of the hour to look for ways to help you deal with credit debts and maintain your credit score during covid.
Do you want to be among those people who can benefit from the right credit utilization during covid? Yes? Of course! (That’s why you are here. :p)
What is the Right Credit Utilization During Covid?
We have been mentioning the term’ credit utilization’ all over the guide, but what is meant by it? It is simply a ratio of credit to card limit.
It estimates the total credit and balance you can use (or are using). For instance, you have a credit balance of $400, and your card has a spending limit of $1000. Then, your credit card utilization will be 40%.
High Card Utilization = Bad Credit Score
Yes, the lesser the credit utilization, the more will be the credit score!
To use the credit card effectively during covid, one must understand how credit utilization can affect your credit scores.
Well, high utilization equals high spending of a lending payment. Didn’t get it? Don’t worry. Let us explain in simple words: First, you must know your credit utilization ratio.
You can think of it as if someone gave you cash but with a limitation to check the remaining balance at the month-end.
Like, less spending hints at your stability to survive without spending all of the loan payment.
But why must you know the credit utilization ratio as you already know the total balance limit? Well, if you know the exact ratio, only then can you make amendments to lower the used percentage.
Secondly, you should also keep a keen eye on your credit report as it is one of the five factors to lessen the utilization rate.
Credit Card Usage Covid
According to the FED report(federal government website of the United States), the credit card usage of the clients dropped by 32% compared to the pre-lockdown consumer percentage.
The reasons for the reduced turnover might be high purchasing but failed to pay credit debts or high credit demand but low credit balance.
Another study by CFPB released that covid and pandemic has made the poor even more vulnerable and affected people with stable income.
More than 40% find it difficult to pay everyday bills, making them fall into further credit debt. For a better understanding, here’s a table comparison of credit usage and covid:
Credit Card & Covid Pandemic
- Credit Account Closing: 70% Refused to Do So
- Credit Card Payments: 38% Preferred to Make Payments with Cards for Daily Needs
- Credit Card Debt: 11% Were Struggling with Credit Debts
- Increase in Credit Usage: By 29% During the Pandemic
- Credit Card Holders: 27% Didn’t Have Account
- Credit Debt Stress: 25% Believe Credit Card Debt Gives Them Stress
So, what can you do to avoid being in that percentage? You must plan for effective credit utilization during covid! But how can you do it? Let’s find out in the next section:
6 Ways for Credit Utilization
In such difficult times when nothing is stable, only the right knowledge and effective credit tips can help you out:
1. Choose The Perfect Covid Card
What does it have to do with credit utilization? Let us explain!
If you apply for a secured credit card with lower interest rates and late payment fees, it will be helpful during the covid. Why? Because it will allow you to make the best use of the credit balance and score.
It also minimized the risk of getting into high credit debts. The lower the credit debts, the lesser the stress will be in unexpected situations.
2. Maintain a Good Credit Card History
You can build a great card history only if you can pay the loan and payments on time. Even if you can’t, the best way is to call your company and negotiate the current circumstances.
The secured card can also be beneficial as they usually have an advance deposit to utilize. Moreover, only keeping the account opened can also help you in maintaining the history.
You should also avoid the temptation of all the sales and offers you see online for the exact purpose. As it will only make you spend more, increasing the debt balance.
Surely, it is the last thing you want to do during covid.
3. Look for Relief Credit Card Programs
Yes, you can also apply for a relief program if you are struggling with a financial crisis during the pandemic.
Ask your credit company if there’s any specific scheme going on which can be helpful in unexpected situations and to deal with debt.
Even if your card company doesn’t have one. Simply, discuss your economic problems with them and ask for their advice and solutions to balance payments in the pandemic.
4. Plan the Purchasing
Budgeting is one of the crucial ways you can save yourself from the cash crisis. You must plan how and when you should use your credit for the purchase.
For the exact purpose, you must first know your current financial condition and savings.
For example, if you need something that’s not a mere requirement, you should put it on the credit card. It includes food, health, and daily living things (tissues, masks, &sanitizers).
In contrast, if you like a new bag or a recently launched shirt, then that’s off-limit. Nobody restricts you from buying them, but it is the need of the hour to think thoroughly.
5. Find Maximum Rewards to Redeem
Yes, if your credit card company offers referral points, cash backs, promoting ads, gift cards, etc., redeem them now.
These free points or offers will help you in making purchases for zero to a minimum value. Moreover, you might get benefit from numerous other hidden credit advantages.
In the end, it can only happen if you look for ways to make a living better.
6. Say No to Advance Payments
We get it that getting advance credit seems the only option for your unstable financial position. But, think about it, what will you do if suddenly the payback rates increase two-fold?
Of course, you are hoping it won’t happen, but you never know with the economic crisis surrounding the world!
So, you must save whatever and wherever you can to maintain the finance in difficult times.
Credit Utilization & Covid: The Effective Method to Survive
No one likes to deal with the credit crisis and deadly outbreaks. However, it still is one of the basic issues most of us are facing right now.
Indeed, poor card scores, credit debts, late payments, and no financial regularity has made it impossible to survive the deadly covid-19 and pandemic restrictions.
To help you cope with an unstable covid economy and poor living conditions, we have listed everything you need to know for efficient credit utilization.
Did we miss anything? Let us know in the comments below. Also, share with us if you have more ideas to deal with the pandemic money stress!
Make sure to check our magazine for more such detailed guides and reports.