I have a small Visa card that I’m paying out before the due date, so my balance is good, but I’ve only had credit for a little over two years.
I started by raising $ 500 for seven months and only using 20% -30% of the balance. Then my regular bank gave me a credit limit of a little over $ 3,000. I always pay off what I use so I don’t have to pay interest that is over 20%.
I worry that I will soon need between $ 2,500 and $ 5,000 or more for cataract surgery. I hope to find another 0% card for a year so that I can have time to pay it out without interest. Would that hurt my good credit?
There are some things that are more important than your credit score. Your eyesight is one of them.
If your only way to get this operation is to pay for it by credit, I want you to – even if you have to pay interest on it.
The short answer to your question is, yes, opening a new credit card and topping up a medical bill would likely damage your credit in the short term. There are two main reasons for this: You would increase yours Credit utilizationyou would never want to exceed 30% of your available balance and you would lower your balance average credit age.
But the hit would only be temporary. This is not like missing a payment or sending an account to collections that will stay on your credit report for seven years.
When you reduce your credit utilization by paying off debt, your credit score improves pretty quickly. So if you open a new credit card and pay it off within a year, your score will likely go back up to what is currently a few months later. Your average credit duration only determines 15% of your creditworthiness. Since you’ve only had credit for two years, the effect should be minimal.
Still, I hope you can Avoid writing your surgery on a credit card. Here’s why.
Medical bills are one of the most negotiable types of debt. At the very least, it’s worth having a chat with your doctor and accounting department about whether this is possible Put you on a payment plan.
Having a medical service provider instead of a credit card company has several distinct advantages: Doctors and hospitals rarely charge interest. They also don’t check in with the credit bureaus, so your creditworthiness won’t be affected as long as you don’t become so insolvent that your bills are sent to collections.
And in the worst case that your bill goes into collections, people with medical bills get some protection. For example, credit reporting agencies require 180 days to wait before medical bills can appear in collections on your credit reports.
If you can’t work out a payment plan in advance, buy both personal loans and credit cards. Approval for a 0% interest credit card can be tricky right now as banks are nervous that customers can’t afford their payments. Personal loans often have lower interest rates than credit cards and have less of an impact on your score as they do not affect your loan utilization.
Your provider may suggest that you apply for a medical credit card – and they often offer a temporary interest-free window. Read the fine print here particularly carefully. These cards often offer deferred interest instead of a true zero interest period.
If interest is deferred, interest continues to apply. If you withdraw the entire balance during the promotional period, that’s great. You don’t pay any interest. However, if you charge a $ 5,000 balance and only have $ 100 left to withdraw at the end of the “no interest” period, you will have to pay interest on the entire $ 5,000 balance.
In this case, a regular credit card is a safer option, unless you have a really solid plan to fully repay your balance during the promotional period.
Whichever option you choose, kudos to you for thinking about how you will pay for this process and the impact it will have on your creditworthiness, rather than once you have the bill in hand.
Even if you have to use credits for this procedure and your score drops, consider it a temporary setback. Apply the same healthy habits that you used to build good credit for paying off that bill and your score will recover.
Robin Hartill is a certified financial planner and senior editor at The Penny Hoarder. Send your tricky money questions to [email protected]
This article originally appeared on www.thepennyhoarder.com