How Good Credit Can Help During Record Inflation

April 18, 2022
6 mins

As Americans struggle with steep gas prices and painful grocery bills, can credit save the day? 

If it feels like you’re paying more at checkout lately, you’re not mistaken. Prices in the US have skyrocketed over the past year. This record inflation takes a bite directly from American wallets when many are still recovering from the financial toll of COVID-19. Read on to learn how inflation can affect your personal finances, and what you can do about it.

What is inflation?

Put simply, inflation describes how fast prices rise over time. The US government uses the consumer price index (CPU) to track the cost of goods like vehicles, food, and energy. According to the CPU, inflation is up 8.5% this March from March 2021, the sharpest 12 month increase since 1981. 

Does inflation impact credit scores?

Inflation doesn’t impact your credit directly; but rising prices mean less wiggle room in your budget. This can have a negative second-hand effect on your credit if you skip bills, pay late, or take on more new debt than you can handle. 

On the other hand, good credit can help you ride out increased expenses. Here’s how good credit comes in handy during record inflation, and how you can build or maintain a solid credit score under any conditions. 

How good credit can help during record inflation

1. Better approval odds

Lenders often set stricter approval terms during times of economic downturn. It’s how they protect themselves from borrowers that may default under financial pressure. Unfortunately, this can block people from accessing credit when they need it most. 

A strong credit history improves the odds that you’ll be able to make financial decisions that can offset the effects of inflation. Buying a home instead of renting, or transferring your credit balances to a lower-interest credit card are two smart money moves that won’t be possible with a low credit score.

Learn more: Why Am I Not Being Approved For A Credit Card?

2. Lower interest rates 

Your credit score influences the interest rates you pay on loans and credit cards. With better credit, you’ll almost always qualify for lower interest rates. 

Paying less in interest is always beneficial, but it’s even more valuable when prices are high. You’ll have more room in your monthly budget for inflated expenses, have an easier time paying down balances, and pay less over the lifetime of your debt. 

3. Higher credit limits 

When prices rise, you may end up charging more to your credit card than usual. Unfortunately, this can hurt your credit score, even if you pay your bills on time. That’s because carrying a high balance increases your “credit utilization” rate – the amount of debt you carry compared to your total credit limit. 

Generally speaking, the higher your credit score the higher your credit limit. A higher limit means you can extend more credit before your score takes a hit (lenders like to see credit utilization rates below 30%). Lenders are also more likely to approve a credit limit increase if you have good credit, which can help keep your overall utilization rate low.  

Learn more: How to Get a Credit Limit Increase

4. Work with lenders

An upside of inflation is that lenders tend to be more willing to work with borrowers struggling to make ends meet. If you’re having trouble paying your monthly bill, talk to your lender before you fall behind. They may offer the option to defer or reduce payments to ease your financial pressure. 

Good credit shows you’re a responsible borrower who has fallen on tough times, which is more attractive to lenders who are considering cutting you a break. 

5. Fewer challenges renting

With housing prices at a record high, there’s more demand for rentals than many US markets can accommodate. 

If you plan to move, or find yourself relocating due to rising prices, good credit can give you a competitive edge over renters. That’s because many landlords run credit checks before approving rental applications.  

6. Save on security deposits

With poor credit, you may be required to pay security deposits on things like utilities and cell phone bills. You may also need to pay a larger security deposit if you rent. With good credit, you avoid these additional costs at a time when every penny counts. 

Even a few hundred extra dollars in your pocket can be the difference between meeting an unexpected expense or falling behind on your bills. 

How to inflation-proof your credit score

Try these tips to keep your credit score afloat as prices rise:

Pay down your debt

Whether or not you’re already feeling the impact of inflation, pay down your existing debt as much as you can. This way, you’ll avoid getting hit with higher interest rates in the future. You’ll also reduce your monthly bills, which will come in handy if money gets tight. 

Build an emergency fund 

Emergency savings can help you afford unexpected expenses or keep you afloat through periods when your expenses outweigh your income. Whether you’ve got a lot left over after paying your bills, or just a little, squirrel some money away for a rainy day. 

Learn more6 Mistakes People Make When Paying Down Debt

Adjust your budget and spending

One of the main places we feel inflation is at checkout. Paying more for gas, groceries, and other essentials can throw our monthly budget out of whack. Take time to go through your accounts and see how your spending has increased.

 If you’re breaking close to even, identify where you can cut costs. Even pausing a streaming service or subscription box for a few months can free up funds to build your savings or pay down debt. 

Learn more: Why Budgeting Is Important for Building Credit

Actively build your credit score 

Inflation creates ripple effects that can threaten your financial wellbeing. In a challenging economy, credit can be a valuable resource – but it can also be a gateway to the cycle of debt. With good credit, you’ll have access to options that improve, rather than erode, your financial stability. 

Actively building your credit score prepares you for whatever the future holds. But in times of inflation, it can be harder to get new credit, or afford a deposit on a secured card. That’s where credit-building solutions like StellarFi come in.

The bills you pay should pay you back – especially now! 

With StellarFi, you can make the most out of rising prices. Just link monthly expenses like your rent, phone payment, and even your Netflix subscription. Stellar reports your positive payment history to all three major credit bureaus: Experian®, TransUnion®, and Equifax®. 

There’s no credit check, no deposits and no interest. Take a look around and start building Stellar credit 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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On-time payment history can have a positive impact on your credit score. Nonpayment may negatively impact your credit score. StellarFinance, Inc. will report your on-time payments to Experian®, Equifax® and TransUnion®. Impact on your credit may vary, as credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.