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Federal employees: How to rebuild your credit after a government shutdown

Summary

The recent government shutdown damaged the finances and credit of many federal government employees. Follow these steps to rebuild your finances and be prepared if it happens again.

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It’s no secret that the recent government shutdown has wreaked havoc upon government employees’ financial situations. As seen in the news, many federal workers and employees now have damaged credit scores due to missing payments and new debts caused by the government shutdown. This has affected many employees including employees the National Park Service, NASA, and the IRS.

Hundreds of thousands of federal government workers did not get paid on time from December 22, 2018, through
January 25, 2019. According to a Financial Wellness Survey by the Prudential Insurance Company of America that surveyed 350+ people affected by the government shutdown, whether federal employees, contractors, or their spouses:

This 35-day shutdown caused some to miss payments on their bills and expenses, which can harm a credit score. It can be
difficult to bounce back after even one missed payment, much less any more than that. Unfortunately, even one late payment can remain on your credit score for up to seven years.

Managing your finances after an unexpected setback can feel intimidating and sometimes impossible. There are several steps
that you will need to take in order to get back on your feet.

Evaluating your new financial circumstances

Evaluate your budget: The first step is to evaluate your budget and savings. Look at your emergency funds to determine what you can and can’t afford. This will dictate your decision to dip into your savings or not.

Take account of upcoming expenses: Calculating and planning for upcoming expenses like house and car payments, electricity bills, and credit card payments or even basic necessities like groceries is vital when attempting to budget using the money that you currently have. Decide what expenses you can cover and for how long you can cover them. No one wants to use their savings to pay bills, and no one wants to have to use their emergency fund, either. Unfortunately, happenings of this
sort (like a government shutdown) are things in life that come up unexpectedly and we have to deal with.

Recovering your credit

Missing payments due to the government shutdown can hurt your credit score for several years if not managed correctly. There a few things, however, that can help you to recover your credit.

Monitor your credit standing

Due to the negative impact that the shutdown can have on individuals credit scores, it is important to vigilantly monitor your credit score. Staying aware of your circumstances is the best way to stay in control of your credit. Businesses like Equifax will be supplying consumers affected by the government shutdown with free credit reports through April. 

Other companies such as Wells Fargo were available for assistance during the shutdown and are available now to assist those affected. Waiving late fees, reversing overdrafts, and creating easier payment options are just a few of the services
that Wells Fargo is offering for some federal employees affected by the shutdown. Make sure to contact your bank or credit union to find what solutions are available for you.

Disputing the late charges that were accumulated on your account(s) during the shutdown can be frustrating, but make sure to look into writing 100-word statements. When used wisely, they can be of great assistance. These statements can give
clarification on these disputes if your credit card company hasn’t already accounted for the shutdown or if your financial history has taken a hit as a result of those 35 days.

Establish a conversation with creditors

Communication is key. Be sure to reach out to potential lenders and establish a dialogue about your situation. Be prepared with past statements, many lenders should hopefully be willing to help you find a solution that helps you get back on your feet. USA Today reported that many banks and credit unions are providing relief for federal employees from late fees as well as offering short-term, no-interest loans that are temporary.

Credit card companies also have something called “hardship programs,” which are in place for when tragedies, natural disasters, or other troubled times strike. Many people don’t know that these programs exist, these are a little more “under the table” and are not advertised, but it is possible to find them. Call your credit card customer service line and ask for help. A guide to finding these programs can be found here.

In addition, credit unions are nonprofit member-owned establishments that can also be a great resource for you to get
assistance. Finding the right credit union for you may take a little time to find one that caters to your exact needs, but joining one can help to lower your interest rates on your cards and loans.

Open new accounts

It can be a good idea to open a new secured card with your 2018 tax refund. Secured credit cards do require a deposit but can help you build your credit quickly. Paying the deposit with your tax refund can ease your mind and help you retain your finances as they are.

Having bad credit doesn’t mean that you should avoid credit cards, used responsibly these credit cards for bad credit can help you build your credit and improve your score. Lucy Maher in the Credit Resource Center from Discover suggests making small purchases that you can afford to immediately pay off as well as making multiple payments in addition to your
minimum payment in order to improve your score.

“Making more than one monthly payment can help keep your balance continually low. This is important because even if you pay in full each month, you can’t be sure when your credit card issuer will send your report to the three credit agencies, and a large balance reduces your overall credit, which can negatively affect your credit score,” Lucy says.

Become an authorized user

Often times, the best first step to building credit can be to become an authorized user on a friend or family member’s
account. If they have a good credit score and healthy spending habits, then you will build your own credit. However, if the account owner has bad payment and spending habits, being an authorized user can do you more harm than good.

Complete a balance transfer

In order to get a lower rate on the credit cards that you already use, try finding a balance transfer card or a card with no annual fees. Doing this can help to save you some extra money and can keep your debt from building exponentially to a point where you can’t get back on track. Transferring your balance to a card with 0% APR (for a limited time) will let you focus on paying your balance without adding more interest.

Get a credit-builder loan

A credit-builder loan is a partnership with your bank where you make payments into your savings account or your bank loans you a small amount that you make payments back to them. Your on-time payments are reported to the credit bureaus. There are several different types of credit-builder loans and this can be a great way to show other lenders that you can pay a small loan responsibly. This type of loan is especially great if you don’t have great credit or are even just starting out.

Prepare your finances for another shutdown

Shutdowns happen more often than you would expect. There have been eighteen government shutdowns in the United States
since 1976. We don’t have much control when it comes to these situations, but what we do have control over is our own preparation for another shutdown.

Look for quick ways to generate extra cash

Finding quick ways to generate cash, such as gig-paying jobs, ridesharing, deliveries, etc., can be a great fallback. Make
sure to look for jobs that you won’t need to quit your day job in order to start. These jobs also need to be flexible as far as scheduling goes and can be started and ended in a matter of weeks. You can also sell things that you don’t need such as old or under-used equipment.

Create an emergency fund

An emergency fund should equate to around three months of living expenses. Follow these steps to ensure build up your emergency fund in case a government shutdown occurs again:

The bottom line

Interruptions in income, like the one caused by the government shutdown for federal workers, cannot be planned, but it is possible to be prepared. Take control of your finances and research your options for a backup plan. Look into what assistance is offered by your bank and credit card companies in times of need. Make sure to establish an emergency fund and a
savings fund that can be relied upon. Do everything that you can to maintain a good credit score – whether through paying off your balance, making on-time payments, or starting a credit-builder loan. We cannot predict what will happen with the government in the future, but we can do our best to create a safety net for ourselves.

What’s up next?

In Debt Management

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Published: February 28, 2019

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