The Fool Proof Way to Keep Credit in the Green Zone
In the aftermath of the spending decadence that defined the 1980’s, we have seen a cultural embrace of all things credit. In spite of the world-wide credit crisis that many countries are still clawing their way out of, we still find millions of spending consumers who don’t see any risk involved in using credit.
Unfortunately, it takes very little for a good credit rating to head south. A short illness results in one missed paycheck, which is enough to put the average consumer behind on their bills. As we all know, one late payment is frequently all it takes to trigger increased interest rates, slashed spending limits and a plummeting credit score.
Does it happen overnight? Not quite, but it’s close. A shortage in cash flow is next to impossible to regain. So begins the monthly shuffle to bridge the gap caused by a couple weeks of missed work. A gap that is impossible to fill for someone living paycheck to paycheck.
Can it be avoided?
Absolutely. In fact, one of the most powerful credit protection tools available is regularly overlooked, dismissed, ignored or rejected by consumers every day.
What is it?
It’s the little box you didn’t tick on the bottom of your credit card application. It’s the waiver you signed on your car loan. It’s the protection you scoffed at for your mortgage.
It is, in fact, insurance. More precisely, creditor insurance.
Consumers have a tendency to roll their eyes at the very thought of creditor insurance. That is until they need it of-course. And by then, it’s too late.
What is Creditor Insurance?
Creditor insurance is not limited to life insurance. It also includes job loss, long term disability, critical illness and in many cases short term illness.
Creditor insurance is protection for loans, credit cards, mortgages and other borrowing facilities. The premiums are based on the amount borrowed. The three most popular types of creditor insurance are life, disability and job loss. In the case of life insurance, the remaining outstanding balance is paid in the event of death. In the case of disability and job loss, the regular monthly payments are paid on your behalf.
Who Gets the Insurance Pay Outs?
Creditor insurance makes payouts directly to the lender, be it a bank, credit card company or automobile dealership. The borrower (consumer) fills out the applicable paperwork to apply for it and payments are then made to the creditor on their behalf.
How Does this Protect Credit?
When life deals out a situation that interrupts an insured person’s cash-flow, the insurance fills in the gap. For example, a person who must miss time from work for physical therapy after an accident will have their minimum monthly payments paid for them by the insurance company.
That means no late or missed payments, no increased interest rates, no damage to the person’s credit rating.
It also means no scrambling to come up with the cash for a loan payment. No sleepless nights worrying about how to pay the bills. No wondering when credit collectors will start calling.
Keeping Credit in the Green Zone
Credit is a consumer’s most reliable ally when it comes to planning for the future. Keeping it healthy and in the green zone is far easier than trying to recover from damaged credit.
Time is both a benefactor and enemy when it comes to credit.
A person’s history of good credit provides a stable track record of bill payments and creditworthiness. In that case, time is a friend since the longer you’ve had good credit, the stronger your credit becomes.
However, even one single missed payment will result in an R2 on your credit report, where it will stay for at least six years. In such a case, time is the enemy.
What it comes down to is this: if you can afford to use credit, you cannot afford to ignore creditor protection. The premiums are low, and in the case of revolving credit, only come into effect when you carry a balance.
It’s a simple, cost-effective and fool proof way to manage your credit and your debts through the many ups and downs that come with life.