The defining factors of credit can seem illusive. For many, it’s difficult to grasp how certain actions — or even inaction — can improve or damage their scores. One factor in particular usually affects every person on the planet several times each year: illness. Cold and flu season is common in the U.S., and though these diseases are rarely fatal, they are still serious enough to keep many of us home during the winter months. How does this seasonal downside affect your finances and your credit? A few ways include:
According to the Bureau of Labor Statistics, 39 percent of non-government workers have no paid leave. Every time the flu bug hits, millions of Americans must either suffer through their illness or sacrifice essential wages. Not only do these options risk the health of others in the workplace and dampen productivity, they affect the individual, the company and the economy as a whole. With that in mind:
- Talk to your boss about telecommuting. Working from home is gaining acceptance in the mainstream workforce. According to data collected by Global Workplace Analytics, telecommuting opportunities increased by 102.1 percent between 2005 and 2014. When it comes to completed work, the average boss is less concerned with where compared to when. Ask your employer about their telecommuting policies in the case of illness. Logging even a half-day will help you avoid budgetary damage.
- Find employment with better benefits. You may be thinking, easier said than done, but the long-term perks of finding better employment are worth a second glance. Paid leave serves as a single piece of a larger puzzle that includes vacation time, short and long-term disability benefits, 401(k) matching, tuition reimbursement and more. A company who values your health is also more likely to value your time and skillset. Begin this year by searching for a career that allows you to take paid time off when you need it.
Childcare is a primary concern for millions of families. When the cost of daycare exceeds the cost of rent, the average household can’t afford to sacrifice more funds when illness strikes. Whether your kids are sick or you find yourself under the weather, keep your savings by:
- Joining a parenting group. Joining a community is a smart way to benefit from other parents’ experiences and goodwill. Meetup.com is full of local groups aimed at getting parents together for playdates, barbecues, and offering support in a pinch. Meet your neighbors and rely on them when necessary. Offer your help in return to build a strong network of support.
- Creating a back-up plan. Suppose the situation is reversed, and your babysitter calls in sick. While you can’t afford to miss work, you also can’t leave your youngster unattended. When this occurs, it’s crucial to have a back-up plan in place. Talk to close relatives about their availability in case of emergencies. If family isn’t an option, research local daycare centers that accept walk-ins and tour their facilities before the need arises.
The sum of lost wages and unexpected expenses is financial danger. A severe flu could cost you hundreds of dollars in just a few days, threatening your savings, the status of your bills and your credit health. Prepare to avoid these consequences by:
- Understanding the Five Factors impact. Illness can affect every area of credit scoring. The five factors that determine your credit include:
- Payment history. Missing bill payments due to lost wages will impact your score by up to 35 percent.
- Credit/debt utilization. Relying on credit to make ends meet affects your credit utilization, or the amount you owe vs. your total credit limit. The higher your ratio, the higher your risk. Charging everyday expenses due to lost wages could hurt your score by up to 30 percent.
- Credit length. Suppose a bad flu season has caused you to max out your credit cards. You are overwhelmed and decide to apply for a new card that allows balance transfers and debt consolidation. You move all your balances to the new card, opting to close your other credit accounts. While your monthly payment may be more manageable, closing your oldest accounts could diminish your creditworthiness by 15 percent.
- Inquiries. As we’ve learned, too much credit equals too much risk. Applying for a new credit account places an inquiry in your file. While one or two won’t hurt, multiple credit applications will make you appear too reliant on borrowed funds. The result could cost you 10 percent of your credit score points.
- Account diversity. Credit bureau calculations favor consumers with varied experience related to revolving and installment debts. Relying too heavily on one or the other could shift the math away from your favor, costing you another 10 percent in valuable credit score points.
- Saving 10 percent of your income. Seeking solutions is an important part of credit strength. Begin now by saving at least 10 percent of your net income. Build a savings account or short-term liquid investment to help you cover expenses when times are tough. Planning for the unknown is wise and necessary.
The bottom line: Occasional sickness is part of life, but a nasty cold bug shouldn’t threaten your livelihood. Be proactive by anticipating financial dangers. The result will help you avoid credit score damage.