The good news: We live in an age where you can pretty much do anything with the assistance of software.
The bad news: Software has only come so far in replacing the services of professionals.
You can purchase software for everything from filing your taxes to improving your credit score, but when it comes to the latter, it is best to entrust your precious credit standing to professionals. The main reason is that credit repair software will require you to do 99% of the work and unless you are a credit wiz, this kind of software will not benefit you much. Here are the reasons why hiring a credit repair company is advisable overusing credit repair software.
Hiring A Professional Saves Time
Unless you know somehow that improving your credit will be as simple as sending a request for investigation to one of the three credit bureaus then repairing your loan can be a very time-consuming ordeal. In some cases, lawyers will even need to be involved in your case involves taking a creditor to task for false reporting.
When you hire a professional, you will need to be involved. For example, most companies have a consultation and what’s known as an intake session where they gather as much pertinent documentation from the client as they can. Apart from attending these sessions and finding and submitting these documents, though, you will not need to commit very much more time in this endeavor. Most credit repair companies work every month in the background. All the client usually has to do is forward correspondences they receive from creditors or bureaus.
With software, the individual will need to pore through their own documents so that they can input critical information into the system, which is essentially a glorified spreadsheet. They will also need to read through all correspondence letters and reply to them directly – all very time-consuming activities.
Software Cannot Fight For You
First of all, no software no matter how advanced can interact with the credit bureaus or credit issuing entities so forget about disputing frivolous reports or getting things like liens and charge offs stricken form your credit report.
There are certain legal time limits that the bureaus have to process requests for investigation and disputes. A professional credit repair company will stay on top of these deadlines and keep track of the process as it develops. They will make sure that the bureaus are doing what they need to do for your best interest and fight against the irritating bureaucracy on your behalf.
At best, credit repair software can update you as to the process of disputes, but you will be responsible for filing the conflicts in the first place and deciding what to make of these process reports.
A Sounder Investment
There is never any guarantee that you or anyone you hire will be able to improve your credit score, but at least when you hire a professional, there will be some sort of money-back guarantee if they can’t do anything for you.
When you “invest” in the credit repair software, there is no money-back guarantee. If you cannot improve your own credit score by using the software you are on the hook for however much you paid for it and for however long you subscribed to the service.
The higher-end credit software suites can cost up to $400 too. Most people’s credit can be improved by at least a little within 2 months, which sounds favorable when you consider that most professional credit services charge $30 to $100 a month.
A More Comprehensive Approach
At least at the time of this writing, the personal approach cannot be quantified. When you hire a credit repair company, you will have the option of working with a human professional to devise a financial plan that you can follow to better credit. This includes an in-depth analysis of your current debts, finances, your financial goals, and in some cases, one-on-one financial coaching services.
No software can provide this thorough analysis and come up with a financial plan specifically suited to your situation. In fact, most credit repair software simply offers dispute letter templates that you can fill out and send to creditors. If you opt for the more expensive software packages, you might be given access to a real live credit expert who can walk you through the process, but at that point, you will be spending as much as you would if you hired an expert only without all the additional services.
They Put the Law on Your Side
Fixing credit is not always just a matter of getting negative marks off your record. Sometimes collection agencies have lawyers, and they will not yield to the average citizen that their actions are unlawful or that their grounds for collection are false.
Software does not know the law, and they cannot talk to these collection agency lawyers to show them that a mistake has been made or that their actions are illegal. But a high-caliber credit repair professional will know the law and put it to work for you.
There are also specific laws that have been enacted such as the Fair Credit Billing Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act to protect consumers and can be leveraged for the benefit of your credit. For example, there are only specific ways a collection agency can go about trying to collect a debt under the FDCPA, and when they violate this act, a professional can leverage the violation as a way to dissolve the deficit for the client.
Simply put, no software can do this for you. In the end, hiring credit repair professionals can save you time, money, and make sure that you have a sustainable way to good credit in the future.
Stated by the The Phenix Group, one of the main reasons that people are reluctant to file for bankruptcy even when they are drowning in debt is that bankruptcy negatively impacts one’s credit score. Depending on the type of bankruptcy on files, the filer can expect a totally score drop of 160 to 220 points. Even if you had good credit to start with, this is a significant drop and one that will probably discourage all creditors from issuing loans or giving out credit cards.
Still, the reason that many people ultimately do file is that they simply have no way out of their situations and they come to realize that letting debts age and pile up is ultimately harsher on your credit score than waving the white flag and admitting that they have no solvency.
Why Bankruptcy May Be Better Than Waiting It Out
Hopefully, you are not on the brink of bankruptcy, but you may be wondering what benefit there would be to filing bankruptcy as opposed to just letting your debts go unchecked. First of all, it is essential to know precisely what filing for bankruptcy does. Depending on the kind of bankruptcy you are filing, doing so effectively lets you off the hook legally for any outstanding debt that you have.
This means that creditors no longer have the option of taking you to court to collect on delinquent debts. That may sound enticing but keep in mind that bankruptcy can murder your credit score.
So is bankruptcy better than just waiting it out? That depends. Most states impose a statute of limitations on debt, which means that a creditor only has a certain amount of time to sue a person for failing to pay a debt. In some states, the statute of limitations expires after 4 years so whether or not it would be better to roll the dice and pray that you can be delinquent long enough without your creditor suing will depend on the state you live in.
It will also depend on your age, marital status, and income. A creditor will be less inclined to act before the statute of limitations expires and actually sue you if you are a senior citizen living on a fixed income. But let’s say you are in your 30’s, have a job and don’t have a spouse and have not started a family. Then you are a juicy target for litigation because not only will you have the time to pay off your debt as mandated by a judge, but you have a job and source of reliable income.
In this case, it would probably be preferable to file for bankruptcy than taking a huge risk that a creditor won’t sue you while they have the opportunity.
Differing Kinds of Bankruptcy
By far, the two most common types of bankruptcies filed in the US are chapter 7 and chapter 13. To put it in simple terms the main difference between these two is that chapter 7 is a relinquishing of all debts legally and chapter 13 is more like a legal payment plan that is decided in the courts. So basically, 7 will automatically relieve you of debt and 13 will adjust the way that you must pay your debt. But, as always, there are caveats.
A Breakdown of Chapter 7 Bankruptcy
To be eligible to file for chapter 7 bankruptcy, you must prove beyond the shadow of a doubt that you do not have the income to pay off your debts feasibly. Chapter 7 gets you off the hook legally for having to pay back your debts, but it can be excruciating and not just because it lowers your credit scores. The court will decide which of your assets are nonexempt, and any nonexempt assets or properties will be appropriated and sold to help pay off your debts. You can keep any property or asset that the court deems exempt.
So it is conceivable that a court will deem a debtors home as nonexempt property if for example there is high equity on the home. In which case, the debtor’s home will be taken and sold. Any remaining debt that cannot be paid off by liquidating nonexempt assets will be transferred from the filer of chapter 7 and committed to a court-appointed trustee.
A Breakdown of Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows the debtor to settle on a payment plan with their creditors. Unlike chapter 7, chapter 13 does not get the debtor off the hook for paying back debts. Instead, it allows the debtor to work out a payment plan over 3 or 5 years, depending on the situation. The payments then go to a trustee who doles it out to creditors, and the debtor has no more direct contact with entities they owe money to. Chapter 13 will also halt foreclosure proceedings, which allows the debtor to keep their home and nonexempt assets.
How Long Do Chapter 7 and Chapter 13 Stay on Your Credit Report?
Another critical distinction between chapter 7 and chapter 13 is how long they affect your credit score. The law stipulates that any bankruptcy will not stay on the debtor’s record for more than ten years. In the case of chapter 13, however, the motion will only be on your credit report for 7 years.
Chapter 7’s usually stay on your record for 10 years since the situation is often direr and the individual is basically saying they have no way of paying back the debts.
You don’t have to do anything to get these marks off your record as they are required by law to be dropped off after 7 or ten years. There are also ways that you can start to rebuild your credit in the 7 or 10-year span that the filing stays on your record. While bankruptcy is a very serious situation and can ravage your credit, all hope is not lost. With time and responsibility, you can come out of it better and more successful.
So, you applied for a credit card and you were approved. You’ve been granted a maximum limit of $2,000 – Perfect! There’s a pair of shoes you’ve had your sights set on for months. After all, isn’t that why you need a credit card? You swipe your shiny new card and are beyond ecstatic with your killer new shoes. Virtually overnight, you’ve maxed out your credit card. You’re completely baffled. How did this happen? You’re now responsible for paying off borrowed funds and available funds in your checking account won’t be enough to cover the balance.
Like many people, you decide to apply for another credit card, so you can pay your bills and keep your head above water. This is certainly no way to live.
What do you do? This feeling can be overwhelming and believe me, there are tons of people who have encountered the same problem. You will need to repair your credit score and get your credit cards bills down, but when you have obligations every month that conflict with your minimum payments, it may seem harder than you realized to accomplish these goals. Facing this challenge will require you to start planning.
I’m sure that plenty of people throughout your adulthood have offered advice surrounding the importance of budgeting your income. And like most people, you immediately assumed that these individuals had no clue what your situation entailed. Everything is easier said than done, right? While creating a budget and sticking to it is undoubtedly difficult, getting into a healthy financial routine will help you successfully manage your credit card spend.
Create a Budget
First, it’s important to acknowledge and firmly understand what you can and cannot afford. Take some time to examine your monthly income against your expenses and purchases to determine if you are spending more than what you’re bringing in. By doing this, you’re just setting yourself up for disaster. And it’s certainly not good if you are only paying the minimum on your credit cards or even less, only because you cannot afford the monthly payments. This means you need to start adequately planning for your monthly expenses so you can settle your debt and erase bad spending habits moving forward.
It’s important to prioritize. Of course, enjoying a meal at your favorite restaurant with friends or treating yourself to some new clothes is fun, but if your monthly income can’t accommodate for these additional expenses than you need to focus on covering the necessities. Don’t let yourself dive into a black hole of lousy credit just for a few nights of cocktails. Once you come up with a budgeting plan and eradicate your debt, you’ll be able to set aside funds as needed for these special occasions.
Create a Spreadsheet
Staying organized is a crucial factor in tackling what you owe on credit cards and how you should be managing your monthly income. A great way to do so is to create a spreadsheet. While this may seem like a tedious task at first, you will find that when you clean up the clutter, you will be able to become more successful at managing your bills.
A spreadsheet will help you put everything into perspective, essentially laying out all the numbers in one place. If you have three credit cards, a student loan, utility bills, and monthly rent payments, that’s a lot of moving parts to be responsible for. And you could find yourself panicking over attempting to shuffle it all together in your mind. By putting it all in front of you, you will have gained a more realistic perception of your financial situation, and you will finally be able to break away from shouldering the weight of your debt.
Look For Good Benefits
Another tip with credit cards is being sure to get a credit card that has benefits. There are plenty of credit cards in the marketplace that you can choose from, and you should select one that best fits your needs. Many credit companies provide cash back incentive or sign-on bonuses that you should undoubtedly research and take advantage of. You can either use the money that you earn back to help pay off your credit card or use it to pay off other bills.
If you have a credit card that comes with a high interest rate or an annual fee, there is often the option to transfer your balance over to a credit card with a lower interest rate and no annual fee. The problem with interest rates is that a lot of times if you are paying the minimum per month then you could be mostly spending your hard-earned pay on interest and be forced to prolong your payments when you could have been finished paying off a credit card at an earlier time.
Set Payment Reminders
Also, make sure you set alarms for yourself. When I say this, I am talking about when to pay your bills every month. We are all human with busy schedules, and sometimes we forget deadlines. The problem with that is that you could run the risk of a bill stacking up and penalties caking on. Also, not paying your credit card bills on time could negatively impact your credit score, which will only make things harder for you moving forward.
It can certainly be a little overwhelming when you think about trying to tackle a battle such as getting your credit card spending in check. You may feel that it is impossible, but understand it is a journey that will take time. By being dedicated and disciplined to staying organized and being financially responsible, you’ll find yourself having a much easier time covering your expenses. Once you get to that comfortable playing field, it will no longer feel like budgeting and instead, feel natural.
Have you ever heard of the expression, “No credit is worse than bad credit?” Like most people, you’ve probably thought the complete opposite. After all, isn’t it better to have no credit at all than to walk around flaunting a lousy credit score? However, this rationale is just not true. Yes, it’s true that possessing poor credit can severely damage your financial standing, but if you are ever seeking a loan to purchase a car or new home, lenders will want you to demonstrate that you have a solid credit history.
If you’re wondering how you begin to build your credit and what measures you need to take to get there, you’ve come to the right place. Many people avoid building a credit history altogether, worried about falling into the pitfalls of being brandished with a bad credit score. The good news is, there’s plenty of positive actions you can take to move your credit standing in the right direction.
Examine How You Got Here
For starters, it’s best to gain a strong understanding of why you don’t possess a credit score to begin. For instance, maybe you just graduated high school or college and haven’t had the opportunity to engage in credit-related activities. This can be attributed to the fact that you have yet to accumulate any student loan debt. Or perhaps, you never needed to apply for your own credit card. Similarly, you may have just relocated to the States and therefore, have to build everything up from scratch. Whatever the case may be, not having any credit can work against you as you navigate through your life and career. It’s time to start working on eradicating this.
So, what should you do to build up your credit?
Get a Credit Card
The most comfortable place to start is to obtain a secured credit card. A credit card may seem like a frightening item to possess because of all the stories floating around about people submerged in credit card debt, which can quickly cause your credit score to plummet. However, owning a credit card means exercising financial responsibility. The critical thing to remember is if you’re going to make non-essential purchases, like grabbing yourself a shiny new flat-screen TV, and you don’t actually have the means to pay for it, then you are putting yourself at risk for falling into credit card debt. Instead, you want to leverage your credit card for things you usually budget for, like groceries or gas, to ensure you never miss a payment.
Unsure of what type of credit card to get? First, you’ll want to look for a credit card that doesn’t carry any annual fees, as this additional expense could be more than you can afford. Another thing to consider is applying for a credit card at a store you typically frequent, like TJ Maxx. A majority of major retailers offer credit cards, and it’s a great place to start if you know you purchase goods from one particular place consistently.
Using credit cards for gas is also a smart investment. Say every time you go to the gas station, you usually hand the cashier a twenty-dollar bill. If you use a credit card instead and immediately pay off the money you used for fuel, it’ll help you begin building your credit and help boost your score in a positive direction. It’s imperative to keep in mind that if you’ve given yourself a $500 spending limit, that you adhere to that maximum. Otherwise, you will find yourself overspending and unable to pay owed funds, which will quickly get you into trouble.
If you are just now starting, it may be a good idea to enlist the help of your parents. If they possess good credit, they will be able to co-sign for you. Having this work alongside your own application will help as well.
Another highly recommend tip to boost your credit is to lease a car. Now, you may have heard that owning a car is the way to go. Alternatively, you may have certain preconceived notions about leasing, but if you lease a car, it opens up a line of credit and allows you to demonstrate your ability to make monthly payments on time. By doing so, it’ll have a direct impact on the strength of your credit score.
Make Payments on Time
If you are a student who had to take out a loan to get through college, you are not alone. Due to the cost of American education, many young adults are forced to apply for government assistance to afford to obtain their degree. Although loan services do not require any payment while you are still pursuing your education, you’ll typically begin receiving monthly bills between six months and a year of graduating. Making steady payments to your student loan is essential for not only building a credit score but improving a poor credit score. If feasible, try to pay more than the minimum balance on your bill each month. This will help you avoid racking up an astronomical amount of interest and paying back double what you originally borrowed from the loan institution.
Another tip for those looking to build their credit is to make utility bill payments on time. You probably see a trend here, but it’s important with all bills to ensure you pay them on time. Whether it’s your car, student loan, rent, or medical bills, anything that you neglect to pay or underpay will hurt your credit score. Also, considering you are trying to build up your credit from scratch, you want to condition yourself to form good habits.
Don’t Stress, Learn as You Go
If all of this makes you a tad nervous, don’t be. You may feel like you are setting yourself up for failure, but that’s not the case. You do not need to worry about getting credit cards and putting yourself in debt. By making a plan and budgeting accordingly, you’ll ensure that your financial picture remains in a healthy state. If you get a credit card, recognize that you are going to use it only with money that you already have to pay for things. What you don’t want to do is use your credit card responsibly on outrageously expensive items that you know you will not be able to pay off quickly. This will set you up on a bad path where you find yourself opening more credit cards just to be able to compensate for your everyday necessities. Then you will get to the point where your credit is so bad, that you won’t be able to apply for loans or mortgages. Be smart with your journey to good credit!
What kind of effect can a student loan have on your credit score? Does this question pique your curiosity? You’re not alone. Many people often wonder how taking out a student loan will influence their credit standing. Will it boost their score? Hurt it? As with any loan or credit card, the healthiness of your financial picture will be contingent upon whether or not you make payments on time. Also, student loans are subject to specific federal rules and regulations that can have an impact on your overall creditworthiness. Here’s a look at how student loans can affect your credit.
Loan Deferment and Forbearance
Contrary to popular belief, student loan deferment and forbearance will not hurt or negatively impact your credit. While it will be noted in your credit report, it will have no bearing on your score unless you miss or make late payments before receiving approval for your deferment request.
There are certain circumstances where deferment and forbearance can actually improve the likelihood of getting a loan, such as a mortgage, approved. For instance, if you can adequately demonstrate to your bank that you are (or will be) in forbearance, they will likely factor that into their decision-making process when examining if your discretionary income is enough to pay back borrowed funds.
When your student loan is reported to credit bureaus, they are treated as installment loans rather than revolving credit, which means you’re making a fixed number of payments. When it comes to your credit score, installment loans carry less weight than an item that’s classified as revolving credit, like a credit card. By properly managing your student loan payments and credit card balances, reporting agencies like Experian, TransUnion, and Equifax will use that as a strong indication that you are fiscally responsible. Debt management is an essential part of ensuring your credit score remains in good standing.
Building Credit History
The bulk of individuals who apply for a student loan are just entering college or grad school and have yet to build a strong credit history. Qualifying for a loan or new credit line can sometimes prove to be difficult when you are unable to demonstrate a strong credit history – especially if you’ve just graduated and have yet to gain employment. This is where a student loan can prove beneficial. Federal student loans do not require you to have a long-standing credit history to qualify, and they’re a high starting point to begin building your credit.
Adding Credit Diversity
One of the criteria used to calculate your credit score is the types of credit you have and how diverse those credit sources are. By adding an installment loan, such as a student loan, to your repertoire, it can help improve your credit standing. As long as your making payments on time, the more types of credit you possess, the more significant impact it’ll have on boosting your credit score.
A Good Investment
When you are borrowing funds for a student loan, it’s seen as a good education investment in your future. In other words, you aren’t applying for a loan for a luxury vehicle or something extravagant that isn’t an essential need and could likely be purchased using a credit card. Because student loans are considered smart investments, it could be used in your favor if a bank is determining whether or not to approve a loan you’re requesting.
Let’s say your credit score is negatively impacted because your account is considered delinquent. If this happens during a time when you are awaiting deferment approval, federal student loan lenders usually correct the delinquency reporting automatically by properly backdating your deferment once it’s approved. You can encounter this issue for several reasons.
For example, maybe you are back in school, pursuing your degree, but accidentally dropped the ball on mailing in your deferment form. Because of this, your account transitioned into “past due” territory. This can quickly be eradicated by sending in your deferment form and backdating the paperwork date to when you originally qualified for the deferment. Once this is processed, the lender should remove the negative report from your credit history and fix any similar issues that ensued as a result of the delinquency.
Past Due Reporting
It’s easy to start panicking when you realize you missed a student loan payment. There’s some good news. Most federal loan lenders have a 60-day policy in place where they will not report past due balances to credit bureaus before the 60-day mark. If it’s only been a few days or weeks, there’s no need to feel alarmed. There is a strong likelihood that it will not impact your credit score. While it’s never good to miss a payment, if you have a clean track record of making payments on time, one slip up won’t blemish your credit standing. Just make sure to remit payment to your lender as soon as you realize the payment was missed.
If your account has rightfully moved into delinquency, it will negatively affect your credit standing. However, if you focus your efforts on making your student loan account current, bringing it out of “past due” territory, it’ll help raise your credit score and help paint your credit history in a more positive light. There are options available for federal student loan borrowers with delinquent accounts, repayment assistance, to help bring your account current. And, once your account is current, you can see an increase in your credit score in as little as a few weeks.
Having a good understanding of your credit and how your student loan can impact your standing for the better or worse is extremely important. Maintaining a healthy credit score will play a critical role in things like your ability to procure loans and gain employment. Because of this, you need to take every step possible to take good care of your student loan.