Credit Repair Tips
Improve Your Credit Score By Proactively Managing Your Debt
Credit Misteps occur for a variety of reasons. Understandinig how to manage these situations can save your credit score and save you thousands in higher interest payment
Credit scores have become the entrance to the loan table. Unfortunately for many people past mistakes with credit can have dire future consequences. While there is not a lot of recourse to recover your credit score, there are ways to speed the recovery process and a few ways to even get around it.
Understand the Credit Score Drivers
Sometimes a credit score can seem like an arbitrary number, but it is quite the opposite. Credit scores take into account how much credit you currently have access to in relation to how much you earn. In addition to this, the score reflects how timely you are in your payments, as well as, how much credit history they have to pull from. In the world of credit scoring, having less history makes you more risky and therefore lowers your score. Similarly, consistently paying bills late makes you more risky. While these factors lower your score somewhat, completely missing payments, defaulting on loans, or filing bankruptcy sends your score in the tank.
Resolving Credit Missteps
The first step to resolving credit issues is actually paying the late or missed payment. A lot of people think that by simply moving forward, the issues will go away. This will occur after seven years, but there will be no recourse to resolve this quicker. By paying off the outstanding debt, your score will be slightly better. Additionally, when you go for future loans, it will help your character case tremendously if you can say that you were able to pay off all of your outstanding bad debt.
There are a lot of agencies out there that claim to help you improve your score. These agencies typically call companies on your behalf and negotiate settlement payments. Basically, they agree to cancel your debt if you pay them some percentage of the money you owe them. These agencies are very hit or miss. Some of them are flat out scams, while others will provide good service. US law now requires some kind of credit counseling when using these services as well. This is positive because it can help you avoid being in a future credit crunch.
You can essentially do this yourself. It is very important that you be proactive in this process. Many companies use credit reporting as a last resort because they know once they get to this stage, they will not likely get all of their money back. You can take advantage of this by calling them, explaining your situation, and negotiating a payment plan. Often, you can completely avoid getting any marks on your credit this way.
The caveat to this is that you have to do what you say you are going to do and you cannot do this too often. By proactively calling companies and working out a payment plan that you follow through on, you and the lender are both better off. Because of this, lenders want to help you. Lenders have been known to lower minimum payments for a few months or defer payments all together to help borrowers get back on their feet. This is only effective if you call them before you get behind.
Once your debt is turned over to creditors, the issue is already on your credit score. Many credit resolution firms use questionable tactics to intimidate you into paying your bills. Don’t get scared or threatened by them. They pay pennies on the dollar to buy your debt from the original lender and make their money by getting you to pay as much as they can. Resolving debt at this stage will have very little positive effect on your score. In this situation, it is better to pay debt that is still with the original lender before you pay off the credit vultures. Again, it is important to pay everything off, but staying current on the debt your have is more important than making up on debt you are already way behind on.
Credit is an important tool. As such it is important that you understand how it is calculated and how your actions can directly affect it. Don’t let credit missteps prevent you from maximizing your score.
