6 Ways to Inflation-Proof Your Credit Score

Lamine Zarrad
April 19, 2022
6 mins

Inflation is at its highest point in over four decades, and Americans are paying more for everything from groceries to gasoline. Consumers are wondering what they can do to ease the effects of increased costs.

As our purchasing power wanes, many people are turning to credit for relief. One one hand, good credit can help you ride out inflation. However, credit can be a risky resource. If you fall behind on payments or max out your accounts, it can do serious damage to your credit score. 

Taking steps to prepare your finances for inflation can help maintain stability despite rising prices. Here are the six best ways to inflation-proof your credit score: 

1. Get current on your payments 

If you’ve had trouble staying on top of your debt lately, you’re not alone. In a recent survey for Forbes Advisor, three-quarters of respondents reported having trouble paying credit card bills on time during the last two years. 

Unfortunately, falling behind on loan and credit card payments isn’t just stressful; it can have serious consequences for your credit. Payment history, which represents your track record for repaying your debts, accounts for 35% of your credit score – more than any other credit rating factor.   

Lenders can only report delinquent accounts to the credit bureaus if they’re more than 30 days overdue, but they may charge penalties if you pay even one day late. Coupled with inflation, those late fees can snowball into a serious deficit in your budget.

Delinquent payments can occur for a variety of reasons, but there’s usually a solution to the problem. 

For example, if you’re consistently paying a few days or weeks late, find ways to help keep yourself on track. Automating your payments can help if you simply forget due dates. If you find yourself making late payments because you don’t typically have cash in your account when the bill is due, look for areas to reduce expenses temporarily while you get caught up.

Already have a delinquent account on your credit report? You may feel like the damage has already been done. The good news is, a 30-day late payment carries less weight than a payment that is 60 or 90 days late. In other words, the later your payment is, the more it can drag down your score. 

Rather than throwing in the towel, do your best to get caught up and focus on keeping a steady bill payment schedule moving forward.

2. Pay down high interest balances

Thanks to inflation, your debt may get more expensive. Recently, the Federal Reserve raised its benchmark interest rates in an effort to curb runaway prices. This, in turn, could impact the interest rates you pay on your credit cards. 

When it comes to paying down debt, it’s always smart to start with your highest-interest balances. But with looming rate hikes, it’s even wiser to tackle them now, rather than later. Make a list of what you owe, and interest rates for each account, and start working your way from highest to lowest interest. 

Paying down your costliest debts will reduce your monthly expenses. This gives you more room in your budget for financial emergencies. Plus, since “credit utilization” is a key credit factor, you’ll improve your credit score as you reduce the amount of debt you carry compared to your overall credit limit.

3. Build an emergency savings fund

Saving money is challenging. In fact, six in ten Americans say they don’t have enough money in their savings to cover a $500 or $1000 unplanned expense. Unfortunately, building a savings fund becomes even more challenging during an economic downturn.

Although it’s tough, focusing on stashing some cash away can keep rising prices and financial emergencies from causing long-term damage. For example, if you need to cover an unexpected repair or medical bill, a savings account helps you avoid going into debt to pay the bill or fall behind on your other expenses. 

Creating a cash cushion can feel unrealistic if you’re on a tight budget. One of the best ways to build your savings is to direct a small amount each paycheck to a savings account. This habit adds up over time. Learn strategies to budget and save to improve your financial wellness step-by-step. 

4. Decide whether to save or pay down additional debt

Once you’ve gotten current on your bills, paid down high-interest debt, and built up your emergency savings fund – the next best step depends on your financial situation. 

The best way to inflation-proof your credit score is, simply: improve your financial stability. For some, that might mean growing your savings even further. For others, this could mean chipping away at low-interest loans. This article on saving vs. paying down debt can help you understand your options. 

5. Reduce your spending and expenses

The forces driving inflation are complicated, but the effect is simple: as prices rise, your life gets more expensive. This means you may have to make some changes to your budget. 

The goal of a healthy budget is to set a plan to pay your bills, save money, and meet your living expenses. But inflation can make it harder to make ends meet. Take a look at your accounts to see how your spending has shifted in recent months. 

If you notice vulnerable areas, or your spending is no longer aligned with your financial goals or income, look for ways to cut back. You can’t control the price of gas or food, but you can control how often you drive or eat out, or eliminate unused memberships and subscriptions. When you reduce your spending and expenses, you can recycle that money into growing your emergency savings. 

6. Apply for credit you want now

Credit can help you ride out inflation. But lenders tend to set stricter approval terms during economic downturns. That’s because they want to do business with borrowers with the lowest risk of default. If you’ve been meaning to apply for a loan or credit card to achieve a financial goal, it may be a good idea to start looking now. 

It’s important to understand terms, conditions, and requirements before applying for new credit. Applying for too many credit cards or loans in a short period of time can harm your credit score. So, only go after the opportunities you’re most interested in and are likely to be approved for – and familiarize yourself with the warning signs of predatory lending.

Build credit with the bills you pay each month already

Improving your credit score can prepare you for whatever inflation throws your way. But it can be tough to focus on your financial future when money’s tight. With solutions like Stellar, you can build credit with the bills you pay each month already. 

It’s simple. Just sign up and link expenses like your rent, cell phone bill, and even gym memberships. Stellar pays your bills on your behalf – and reports your positive repayment history to three major credit bureaus: Experian, TransUnion, and Equifax.

Signing up is easy, and there’s no deposit or credit check. Take a look around and get started today. 

The StellarFi blog is intended to serve as an informational resource. While StellarFi can help you build your credit, we do not provide financial, legal, or accounting advice. Please consult a trusted advisor for financial, legal, or accounting guidance as needed.

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