Benefits Of Using Credit Repair Consultants
Most of us are not familiar with the inner workings of Equifax and TransUnion and the laws that govern them. However, a little-known secret to credit rebuilding is to seek out the help of professional credit repair consultants. Yes, not an app, but a person.
These individuals are fully versed in the laws that these credit reporting agencies must abide by. With your permission, the credit repair consultants contact the credit reporting agency and have the incorrect information removed as soon as possible. The experts will go through your report with a fine-tooth com and come up with a plan to improve your credit score. Remember, these credit repair professionals have worked on thousands of accounts and have documented success.
Think about this situation: you are shopping for a mortgage but also have errors on your credit score. If you are in a situation where you need to see quick results but are disputing your score on your own, these experts can really save the day. It may be worth the money to hire help.
However, when using a credit repair consultant, you must provide them with full transparency. Things that seem trivial to you can impact the outcome of your credit rebuilding goals. Be honest about everything.
Reasons For Credit Score To Drop
There are many factors involved in developing your credit score, so it may be difficult at first to determine what exactly caused a decrease. Start by seeing if any of these apply, then check out the solution for each situation. Itâs also possible for several factors to influence your score at once.
Length Of Time Of Credit History
This is worth about 15% of your credit score in Canada. How long have you had credit? The longer youve had credit, the more youll see your credit score bumped up.
For example, lets say youve had the same credit card for 20 years.
Youve been an angel and paid your balance every month. If you cancel that credit card, youll see a hit of about -75 points.
This is because all those years of diligent payment history have been wiped out. This also shows that if youre applying for a loan, dont cancel any cards before you apply. And if you have average credit, avoid chasing the latest offers for points or money-back cards that come in your mail.
When trying to build your credit rating, dont cancel your credit cards. If you struggle to stick to a budget, you can just cut up your credit cards and dont use them. And if you have fees, consider reaching out to the credit card company you currently have and ask if they have a different card with no fees in order to maintain your long payment history.
On the flip side, sometimes our clients also get obsessed with not borrowing any money. After they go through a financial crisis, they might get very allergic to any type of credit. As a result, over time they dont have credit cards, car loans, or any payment history.
Inaccurate Information On Your Credit Reports
Sometimes creditors make credit reporting errors. Because of this, its a good idea to review each one of your reports from the three major credit bureausEquifax, Experian and TransUnion. You can view all three of your reports for free weekly through April 20, 2022 by visiting AnnualCreditReport.com.
While reviewing your reports, check to make sure your accounts and personal information are correct. If you spot an error, dispute it with each credit bureau that lists it online, by mail or phone. Also, keep in mind that if you see an account that you never opened, it could be a sign you are a victim of identity theft.
If you believe someone has stolen your identity, file a report with the Federal Trade Commission through IdentityTheft.gov and freeze your credit with all three credit bureaus as soon as possible .
You Recently Took Out A New Line Of Credit
You mightve seen a drop in your credit score if youve recently been accepted for any new lines of credit. The amount your score actually drops will depend on how large the loan is and your overall credit history, but its one of the most common reasons peoples scores go down, according to Griffin.
It may not make sense at first glance: You had a good enough score to secure a low-interest mortgage loan, so why would it suddenly drop down now that you have it? But from a creditors perspective, Griffin says that while you may have good credit history, they have no idea whether or not youll continue to make the required payments long-term.
The good news is that if your credit score has taken a dip after being approved for a new loan, once you consistently make payments over the next few months, it will likely rebound or even grow as you build a longer credit history.
One piece of common knowledge about building credit is that your score tends to take a hit whenever a hard credit check is run on you, usually when applying for a new line of credit or apartment. But according to Griffin, a credit inquiry alone is unlikely to have a major impact on your overall score maybe 10 points at maximum.
You might see your scores dip a bit initially, but inquiries are really the least important factor in credit scores and will have the least impact, he says.
Don’t Miss: Credit Score For Paypal Credit
Understanding Your Fico Score
Your FICO score is based on the following:
- Payment history: 35%
- Account age/length of credit history: 15%
- New accounts/hard inquiries: 10%
The VantageScore, another consumer credit rating system, uses similar criteria, in a slightly different formula developed by three .
Clearly, the most important factors are establishing a history of on-time payments to all creditors and keeping debt low in relation to the amount of credit available to you .
You Are A Victim Of Identity Theft
What if you check your credit history and see something besides an obvious error? If you think someone opened and used credit in your name, you may be a victim of identity theft. Signs of fraud include addresses you’ve never heard of or other personally-identifying info that doesn’t belong to you.
âSolution: Stop what you’re doing and file a report at identitytheft.gov, as well as your local police . Dispute data on your report with each reporting agency, and contact any companies that may have accounts under this false information. Many cards also have fraud alert options and the ability to freeze your credit so that more accounts can’t be opened while the situation is resolved.
Read Also: How To Raise Your Credit Score By 50 Points
Where Does Your Credit Score Rank Compared To Other Canadians
There is a hierarchy of scores. The closer you are to 900, the more creditworthy you are. Here is the breakdown:
- 300-600 is in the poor or subprime category you will have a very difficult time getting approved for most and/or lines of credit. Interest rates on car loans will also be quite high.
- 601-650 is considered fair, you are still below the median credit score of 660 in Canada, but you will be able to qualify for store credit cards.
- 651-700 is considered good as your score is comparable to most other Canadians, your chances of being approved for bank credit cards and other financial products are quite high.
- 701-750 is very good credit you will receive preferential interest rates and offers from all major lenders.
- 751-900 is classified as excellent you are in a class by yourself and will have no issues getting the best credit terms.
After reviewing this ranking system, you will be able to see where you compare to the rest of Canada. A wonderful thing about credit scores is they are fluid. Should your score be on the lower end of the spectrum, by following some best practices that we will discuss in a little bit, you can turn things around quickly.
You’ve Experienced A Major Event Such As Foreclosure Or Bankruptcy
The late payments that often lead up to a bankruptcy or foreclosure harm your credit scoresand the events themselves can make matters worse.
Bankruptcy is a legal process initiated by borrowers looking to get relief from debt payments, and it’s the most harmful single event to a consumer’s credit. Foreclosure is when your mortgage lender takes possession of your house, often following four consecutive months of missed payments, and is second only to bankruptcy in terms of credit harm.
In addition to damaging your credit score, either event can disqualify you from certain types of borrowing in the future. A mortgage lender may be unlikely to take you on as a borrower if you have a foreclosure in your past, for instance. A legitimate foreclosure mark on your credit report will stay there for seven years.
The amount of time a bankruptcy stays on a credit report depends on the type of bankruptcy filed. Chapter 7 bankruptcy, for instance, appears on your report for 10 years from the date you filed, while Chapter 13 bankruptcy appears for seven years.
Recommended Reading: What Is Cbna On Credit Report
Your Balances Got Too High
If you’ve recently been charging more than usual onto your credit card or you used it for a big purchase, that can raise your credit utilization. Credit utilization is 30% of your FICO® Score, and your card issuers report your balances every month, so it’s a factor that can change your credit score quickly.
Your credit utilization is simply your combined credit card balances compared to your combined credit limit. Let’s say you have $1,000 in available credit and $700 in balances. That would put your utilization at 70%, which is considered too high and would damage your credit.
How to fix it — Reduce your credit utilization to 30% or less and you’ll quickly raise your credit score. Here are three ways to do this:
- Pay down your balances.
- Ask your card issuers to increase your credit limits, as more available credit lowers your credit utilization.
- Open a new credit card. When its credit limit gets added to your credit file, it will increase your available credit.
Your Last Collection Dropped Off Your Credit Report
When calculating credit scores, credit scoring models place people in different buckets, known as scorecards. Your credit profile is compared to other people in your scorecard to come up with your credit score. While you may have been at the top of one scorecard with the collection on your credit report, you may fall to the bottom of a different scorecard if any negative information falls off your credit report.
This type of credit score drop is outside of your control. Fortunately, as long as you keep paying your bills on time and keep your debt low, your credit score will improve.
Read Also: Qvc Shopping Cart Trick
Why Did My Credit Score Drop After Paying Off My Loan
Your credit score is calculated using a specific formula. Your score is an indicator for how likely you are to pay back a loan on time. Several factors contribute to the credit score formula, and paying off debt does not positively affect all of them. Paying off debt may lower your credit score if it changes your credit mix, or average account age. Here are some scenarios that could negatively affect your credit score:
- You eliminated your only installment loan or revolving debt: Creditors like to see that youre able to manage various types of debt. If eliminating a particular debt makes your credit report less diverse, it can negatively affect your score. For example, if you pay off an auto loan and are left with only credit cards, your suffers.
- Youve increased your overall credit utilization: Keeping the overall utilization of your available credit low results in a better score. But when you pay off a revolving line of credit or credit card in its entirety and close the account or let the account go inactive , it decreases the total amount of credit you have available, potentially increasing your remaining utilization rate.
- Youve lowered the average age of your accounts: The longer your accounts have been open and in good standing, the better. Having a 20-year old account on your report is a good sign, even if you dont use it closing that account and being left with accounts no more than five years old dramatically reduces the average age of your accounts.
Any Credit Score Drop Is Likely To Be Minimal
Having said all of that, the credit score drop that results from paying off a car loan is likely to be quite small. Ill share my recent personal example. I monitor my own credit closely, and recently finished paying a 36-month car lease. As soon as the account was updated to “paid loan” on my credit, my FICO® Score dropped by 4-6 points, depending on which of the three credit bureaus I checked.
To be clear, every situation is different. The impact of paying off a car loan is likely to be small, but its important to emphasize that the effect on your credit score could be significantly different from mine. For example, if you have just one or two other items on your , or if your credit file is relatively young overall, most reports indicate that paid-off loans can cause a bit more of a dip in your credit score. On the other hand, if you have many other accounts in good standing, the effect of a paid-off car loan can be extremely minimal, if anything at all. Or, if you have a long-established credit history and most of your other active accounts are even older than your car loan, paying your loan off could potentially improve your length-related scoring factors and could result in a small increase.
You May Like: Chase Sapphire Preferred Score
Someone Else Missed A Payment
If you co-signed on a loan or a credit card for a friend or family member, youre responsible for making sure the payments are made on time.
When the person you co-signed for misses a payment or runs up a large balance, its your credit score thats on the line, unfortunately.
What to do:
If youre worried the person you co-signed for might not be able to make their payments, you should set up the account so that you can monitor it online.
Schedule a reminder on your calendar app for a few days before the monthly payment is due, and check the statement to make sure that its been paid up.
In the event that the payment has not been made, you might need to cover it yourself if you want to prevent your credit score from taking a hit.
You also should consider having a talk with the person you co-signed for, and explaining that your credit score has been affected. It might be a bit awkward, but, unless your family member or friend starts making timely payments, the only alternative is to close the account.
Tips For Improving Credit Score After Paying Off Debt
While paying off your credit card debt is important, what matters more is on-time payments and your utilization rate. Many times, borrowers will ignore these factors, thinking that clearing up their debt as quickly as possible is the key to a stellar score. But there are a few other methods to consider:
- Be strategic with the order in which you pay off your debts. Personal loans and credit cards often have higher interest rates than mortgages, car loans and student loans. Paying off those first not only helps keep your credit utilization in check, but will also save you money in interest. You can also use a debt paydown calculator to help .
- Check your credit utilization. If youve paid off your debt and your credit score went down, look at just how much of your credit you are using. If its above 30 percent, you might consider charging less each month. If that isnt an option, you could speak with your issuer about increasing your credit limit. Both of those should help increase your credit score.
- Open another credit card. While opening accounts could temporarily lower your score due to hard credit checks, opening a new card could increase your total available credit and spread your charging among several cards.
Don’t Miss: Credit Score Itin Number
One Of Your Credit Limits Decreased
Similar to maxing out your credit cards, having your can increase your credit utilization ratio and negatively affect your credit scores.
Imagine, as in the example above, your total credit limit was $10,000 and you carried a balance of $3,000. In this case, your utilization ratio would be 30%. If a credit card issuer lowered your limit to $6,000, but your balance remained the same, your utilization ratio would change to 50%. This could cause your credit score to drop.
Credit card issuers set initial credit limits based on factors including your income, current debt-to-income ratio, credit history and credit score. An issuer might lower your credit limit if, among other reasons, you haven’t been using your card much or if you frequently miss payments or pay late.
You can request a from your current issuers or open a new credit card account if you’re concerned that your credit limit is too low. But know that if your limit recently went down, an increase might be hard to come by, and it may be best to wait to request more credit until your score improves.
Regardless of whether your credit limits are shrinking or your balances are increasing, keeping an eye on your credit utilization ratio will help you better understand your fluctuating credit score.