Natural Disasters Can Actually Destroy Your Credit Score
April 20, 2020 (Investorideas.com Newswire) You may have come across many different tips, hacks and tricks for improving your credit score online. While some are better than others, and some actually work wonders over time, few can withstand a natural disaster. This is something that isn't talked about when it comes to home finance. The reason is that there isn't a lot you can do against the forces of nature. Even the best ways to build your credit score may not save you from the damage of a hurricane.
Around 90,000 people are killed each year due to earthquakes, hurricanes, floods, forest fires, and landslides, etc. Over 160 million people are affected by these disasters in some way or another. Unfortunately, if you've been a victim of a natural disaster and have survived, your credit score may have been destroyed.
How Natural Disasters Destroy Credit Scores

According to a report by the Urban Institute from Washington, D.C., natural disasters can deeply widen income inequality. That has a direct impact on the credit score of individuals across the board. The report looked at data from natural disasters that hit communities from 2011 to 2014. What it found was that natural disasters have very real economic aftershocks on people. They can destroy credit scores, and result in home foreclosures. They can also lead to enormous debt collections that people can't pay for.
Entire livelihoods can be destroyed permanently. Of course, this is no surprise to many. After all, a natural disaster literally leaves disaster in its wake. However, talking about the aftershocks in economic terms rarely comes up on the evening news.
The report identified that after Hurricane Sandy, the average point drop on credit scores across America was 7 points. Two years later, the average drop was recorded at 10 points from levels before the hurricane. This shows that the average citizen became poorer or less financially stable even years after the disaster had passed. This, unfortunately, is the case for most disaster-hit areas.
For people that had debt in collections, their percentage was 5% higher in disaster areas than normal after 1 year. Three years after Hurricane Sandy hit, however, that number rose to 10%. The ramifications of the disaster continued to linger and affect not only credit scores, but debt.
There are several factors to take in to account here like the destruction of the workplace. People can't start to get back on their feet if their only source of livelihood is either destroyed or damaged. Office foreclosures, massive repairs, budget cuts, salary cuts, etc., all eat into a person's paycheck. Of course, they're unable to pay for a lot of the little luxuries, and, unfortunately, in many cases, basic utilities.
One of the worst ways people choose to deal with this is through payday loans. Nearly 12 million Americans use payday loans for emergency expenses. They can be difficult to pay off and thus damage credit ratings even further.
Hurricane Katrina
A different study done on Hurricane Katrina showed that credit scores got better and debt declined. For citizens that experienced the wrath of that hurricane, the payouts they got went to paying off mortgages.
Instead of making repairs or rebuilding their homes, the citizens largely chose to pay off their debts. In the cases that they did use their credit cards to pay for repairs, the amount leveled off at $500. While credit scores did drop over the two years following Katrina, they only dipped 0.06 standard deviations. That's nothing compared to the damage that was done after Hurricane Sandy.
Medium-sized Disasters are Worse than the Major Ones

Something troubling about natural disasters and their link to credit scores is that it's worse if the disaster is local. Take the example of a large hurricane like Katrina, Sandy, or Harvey. They're major hurricanes that affect entire states and even multiple countries. They can cost billions of dollars in repairs and aid packages to make amends for. However, in the long run, they're better for your credit score than a localized disaster, like an earthquake or fire.
While this may seem like cold analysis, it's the truth. Large disasters often get a lot of media attention and news coverage. They also affect major economic centers that are monetarily very valuable to a country. Hence, they receive the largest aid packages and bailouts. This aid can pay for repairs and rejuvenate entire towns and the businesses within them. A town can then get back on the road to recovery.
For a local disaster, federal aid is pennies compared to that for a major disaster. When no major economic centers or cities are hit, media coverage, news coverage, and aid all become scarce. Hence, it's much, much harder for people to get back on their feet when proper attention is not given to them.
Firefighters sifting through wreckage

What can you do after a natural disaster? The answer very much depends on your situation. In case you do get bailouts, you should pay off your debts and keep your expenses low. However, in the case of little or no help, you have very limited options. Of course, there is no guide on "How to build your credit score fast" after a disaster. However, you can start with these 4 steps.
1. Get a Copy of Your Credit Report
Getting a copy of your credit report is perhaps the first thing you should do after a natural disaster. Your credit score may plunge in the aftermath. Hence, having a copy of your financial stability before the disaster can help lenders understand your predicament and get loans.
2. Create a Budget Post-Disaster
Even suggesting this seems cold. However, it's a very practical way to deal with such a great loss. You need to cut down your expenses to their bare minimum depending on the disaster. You will be dipping into your savings, of course. So you need to make them last.
If your home has been destroyed, be sure to cut off electricity, Wi-Fi, any other data plans, cable, etc. After all that is cut out, you should also cut back on any subscription based services you're using for the foreseeable future.
3. Get In Touch With Your Creditors
Reach out to your creditors once you have an idea of your finances. Credit card companies may email their customers in the wake of a disaster telling them they're aware of it. However, you shouldn't rely on their "good will" and make the call yourself. Use email, chats, and phone calls, anything you can to get in touch with them.
Credit card companies may offer you payment assistance programs and even temporary moratoriums. These will be allotted to individual customers on a case by case basis.
4. Document Your Conversations
Comprehensively describe how the disaster affected you. Leave out no details. Make sure you've made your creditors aware of how dire your consequences are.
Keep a detailed record of this conversation in writing. Get the name of the person you talked to, their designation, and any changes made to the credit agreement. Ask for the changes to the agreement in writing to be sent to you as proof.
Using these tips, you can at least start to get back on your feet.
Author bio: Emily Scott is a senior content manager at KikOff.com. She is responsible for overseeing the content writing services at the site. She enjoys bowling in his free time and loves the works of William Wordsworth.
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