Surviving a financial setback

Dear myFICO,

My husband lost his job about 4 months ago and we're now living solely on my income until he finds a new job. At first we weren't too worried about making ends meet but now we realize that we really need two incomes. Recently, I've been skipping some of smaller bills to pay our larger obligations (mortgage and car payments). I see my FICO score has plummeted lately - I assume because of these missed payments. Is this downward spiral inevitable for people in our situation?

Los Angeles, California

Dear Cassandra,

I'm sorry to hear about your husband's job loss and the position that you find yourselves in because of it. It often feels like a perpetual downswing when money gets tight; you can't pay your bills which hurts your FICO® score, which in turn can limit your credit options. There are no set guidelines to help you determine which accounts to prioritize, but we can help you understand how your FICO score is going to consider different courses of action. Let's take a look at dealing with different obligations when money gets tight.

Utility bills - you may have noticed that utility bills, such as phone, gas and water aren't listed on your credit report. Since they aren't listed on your credit report, they aren't factored into your FICO score, right? Sort of, as long as they are paid as agreed, they won't have any impact on your score. However, if you skip utility payments, the utility companies may submit these unpaid accounts to collection agencies, which can report them to the credit bureaus where they'll be considered negatively by your FICO score. The take-away here - don't neglect these bills just because they aren't listed on your credit report, they can still damage your FICO score if not paid as agreed.

Credit cards - there are many different strategies for managing your credit cards when you can't afford to pay off your balances each month. Here are two things you should do to prevent your FICO score from tumbling:

  1. Pay at least the minimums on all of your cards.
  2. Don't let any account go so delinquent that the account gets turned over to a collection agency or the lender takes you to small claims court.

Paying the minimums will keep your accounts in good standing even if you're not devoting much towards your balances. Hopefully, when you again have two incomes you can pay more than the minimums and work down the balances. Making sure a debt doesn't get submitted to a collection agency is very important. Keep this in mind - you can always get a delinquent account back in good standing by getting caught up with your payments, but once it is charged-off as a loss you probably can't salvage that account; and a charge-off or collection on your credit report is something you really want to avoid.

While there are many considerations when managing your credit when money is tight, keeping these things in mind can help keep your FICO score healthy. A good FICO score can help preserve your credit options open when you're in a better position to take advantage of them. From the entire myFICO team, we hope that you get through this difficult time and both you and your husband find your financial footing again very soon.

myFICO Team