Our lifestyles are such that reducing the amount of driving isn’t always feasible. We still have to drive to and from work every day. The kids need to be dropped off at daycare. Groceries need to be purchased. We have a dependency on driving and on buying gas.
When gas prices go up, most of our incomes don’t also go up. We have to compensate for the increased cost of travelling and, because of our lifestyles, it usually doesn’t involve travelling less.
Back in 2005, when gas prices began rising as a result of Hurricanes Katrina and Rita, an American Banking Association survey revealed that credit card delinquencies were also making all-time highs, negatively affecting credit scores.
High Gas Prices, Low Credit Scores
Higher gas prices and credit scores don’t have a direct cause-and-effect relationship.It’s the consumer response to increased gas prices that can cause credit scores to drop.
Here are two things consumers do when gas prices increase that leads to lower credit scores.
- Use credit cards to “afford” the gas. Consumers often have the mindset that credit cards are an extension of their wallets. So, when times get hard, they rely on credit cards, often charging more than they can afford to repay. Credit card balances increase, credit utilization increases, and credit scores drop.
- Cut back in other “less painful” areas. At least 50% of consumers skip credit card payments when money gets tight. Like the 2005 post-Hurricane Katrina trend reveals, people will skip credit card payments in lieu of purchasing higher-priced gas. Since payment history influences credit scores most, missed payments can have a devastating effect on credit scores.
Protecting Your Credit Score
Keep in mind, if you can’t afford to pay cash for gas, chances are you can’t afford it at all. Shield your credit score from damage by only charging what you can afford.
You’re asking for trouble if you charge anything more than that.
Make your credit card payments on time. A single late payment might not damage your credit that much, but it will cost you a late fee and increased the interest rate. Not only that, one late payment often leads to another, which leads to another. Before you know it, you’re considering bankruptcy. Make every effort to pay your credit cards on time.
Professional Consultants at Coast to Coast Credit Services can answer all your questions and offer you a “Free” evaluation of your current credit situation. Call today at 888-292-2525’
Article courtesy of aboutmoney.com By LaToya Irby