How to Build Credit as Inflation Rises

Inflation may have your budget stretched to the max, but that doesn’t mean you have to pause your financial goals. Navigate this uncertain economic climate by making smart moves for your money. You can make mindful choices each day that will help you manage rising prices and rates.

If you aren’t sure how to blend daily financial management with your credit-building objectives, it’s time to learn. Improving your overall financial position may be easier than you may think. 

1. Build a Credit-Boosting Financial Profile

Your daily financial habits are what build your credit over time. Paying bills on schedule, keeping credit card balances low, and only requesting credit when you need it are great habits. But if your financial profile is incomplete, you could be missing out on factors that could boost your score. 

Your credit score is determined by five factors; some are behavioral, and others require the use of certain products. On-time payment history, amounts owed, credit history length, credit mix, and new credit influence your score. While you should always strive to pay your bills on time, you should also consider completing your credit profile. If you’re a devoted debit card user, you’re missing out on two major credit factors — amounts owed and credit mix. 

Without a mix of installment and revolving credit, there’s nothing for the credit reporting bureaus to score. And without credit use, they can’t determine whether you’re a reliable borrower or not. New credit users can get the best of both worlds with a secured credit card. These cards often skip the credit check but do report credit use and payment history to the credit reporting bureaus. Use your card for regular purchases and pay it off each month to start building your score.

2. Check Your Interest Rates and Owed Balances

Generally, the annual percentage rate (APR) for your credit card is variable. This means that as inflation rises and the Federal Reserve increases rates, your APR can go up as well. If you’ve been carrying a balance, this means you’ll incur higher interest charges. Soon, you’ll have a higher revolving credit balance and could see your credit score plummet. 

Review your existing credit and loan accounts to refamiliarize yourself with your interest rates and amounts owed. If you find that some rates are higher than expected, give your lender or card issuer a call. Customers with great payment history can be granted an interest rate reduction or special promotional rate for a fixed term. This 15-minute task could help ease the pressure on your wallet and make it easier to pay down debt. 

If it’s been a while since you tabulated your debt, seeing everything in front of you may inspire action. Fixed-rate loans like auto loans, installment payments on products, and mortgages make it easy to become complacent. But your awareness of their presence and intentional management can improve your credit. 

If you use “buy now, pay later” providers like Afterpay or Affirm, automate your payments to ensure you complete your repayment commitment. Pay extra toward loans whose payoff date is within two years to close them out and reduce your debt ratio. 

3. Ensure Your Financial Reputation Is Speaking the Truth

Just as in your career and social circles, your reputation matters in the financial arena. However, your financial reputation isn’t glaringly obvious. To see where you stand, you have to get access to more than just your credit score. Your credit report is the truth behind your numerical score, and if there are errors, you need to fix them now. 

Request your free credit report to get an overview of your lifelong credit history. Review it in its entirety, dating back to the very first credit request you made. Check for open accounts you may have forgotten and consider closing them. Remember, doing so will reduce your credit history length, but unused, open accounts could pose a risk for cyber fraud. Choose with care the accounts you’ll close and consider spacing closures out over time to reduce the credit impact. 

Should you find mistakes like missed or late payments reported in error, first reach out to the financial institution reporting them. Their team will research the issue and determine whether the disputed item is in fact inaccurate. If so, they will send the corrected data to the credit bureaus. 

It may take a couple months to update your account, so be patient and continue working toward your credit goals. Include reviewing your credit report to your financial planning practices at least twice a year to monitor your financial reputation.

Staying on Your Best Financial Behavior

Just because inflation is at a 40-year high doesn’t mean that life stops happening. Cars break down, relationships blossom, and job changes become a necessity. 

Before you make a financial move, though, pause to consider how it aligns with your goals. The dopamine rush of excitement associated with shopping or planning for a significant event can cloud your decision-making skills. Pump the brakes to really think about your big purchase or change, especially if undoing it isn’t an option.  

Resist the urge to delay repayment plans, skip payments, or charge more than you can afford. Bad marks on your credit report take years to recover from, so don’t reverse your progress. Keep your credit-building goals at the forefront of your financial decisions, no matter the inflation rate. 

History shows that inflation rates will eventually return to sustainable levels, making your solid financial habits even more important. Put in the work now, and your credit score will open up financial doors you never thought possible.