Repair Your Credit – “Waiting It Out” Doesn’t Work

Repair Your Credit Now

You ran into a few problems with credit and now you have negative accounts listed on your report. Derogatory information no longer appears after seven years, so you may be tempted to wait it out as a way to repair your credit. However, you run into several major issues when you take this approach.

1. Creditors Reselling Debt

Once you miss a few payments on an account, a creditor typically claims a loss on the debt through a process called a charge-off. They may sell the account to a collection agency. This company attempts to get payment for the delinquencies. If they’re unsuccessful, the debt may pass to other debt collectors. These accounts may linger on your credit report, particularly if you make a payment to one of the businesses. You may get stuck waiting several additional years past the seven-year limit due to this activity and debt reselling.

You also get into a position where it’s difficult to keep track of the agency holding your debt. Some scam companies may act as though they are the responsible party, but they’re simply trying to get your personal information. With identity theft on the rise, you put yourself at risk.

2. Delayed Drop-offs

Why repair your credit when the negatives will just go away in seven years? Well actually, your bad debt doesn’t disappear from a credit report when the account reaches seven years in total. It’s calculated based on the date of the first delinquency, which is when you began missing payments. If you skipped several months then attempted a payment plan with the company before the charge-off, you may end up adding months or years to the predicted drop-off rate.

3. Multiple Listings

Another issue with waiting out seven years instead of repairing your credit, is the number of negative account listings you end up with on your credit report. You may only have one charge-off, but you can have the original listing, plus another one for every collection agency that purchased the debt. Waiting it out actually causes you to accumulate even more bad debt. Time is of the essence when you need to repair your credit. These entries bring down your credit report and can make your credit-worthiness look worse than it is.

4. Legal Consequences

You are legally liable for the debt you incur, even after the original creditor charges the amount off. The company has a certain statute of limitations in which they can take legal action against you for the account. This period varies from state to state but lasts for several years. You can get served with a lawsuit for the full amount, plus legal costs. Not only do you need to go to court, but you get a judgment against you that also ends up on your credit report.

5. Financial Consequences Costing You Thousands

Bad credit does more than stop you from getting credit cards. You end up with higher interest rates on mortgages, personal loans and car loans, if you can even qualify for them at all. Insurance companies use credit scores as part of their risk profiling, so you get a higher premium when you pick up vehicle or home insurance. Some creditors may place a wage garnishment or bank account lien on you after winning a judgment. You get money taken out of your paycheck or directly from your checking account, which can have disastrous consequences if it happens at the wrong time.

If your delinquent accounts come from the same company that holds your checking or savings account, it may end up pulling money from your accounts to cover these costs.



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6. Career Consequences

Government contracting often requires a security clearance for employees. If you have significant debt, you may not qualify for the right level to get the job. Many companies, particularly those in the financial industry, also look at your report as part of the hiring process. They may feel that many collection accounts show a lack of responsibility. To think you could be fully qualified but not get the job because you didn’t repair your credit.

7. Personal Consequences

Finding a place to live becomes difficult with bad credit. Landlords look through credit reports to determine whether you can afford to live in the apartment and whether you would be a good tenant. If they see a lot of charged-off accounts, you could get passed over for other applicants. Most professionally managed properties look at this information, so you would have to search out a private landlord instead.

The stress associated with bad credit is also significant. You have to worry about constant application rejections, wage garnishments, lack of access to credit products and an inability to get good rates on anything. In an emergency, you can’t turn to a credit card, which leaves you at the mercy of predatory lenders.

Since you can’t get credit cards, you don’t have access to incentives such as cash back, rewards points, roadside assistance and travel insurance. If you do qualify, you may have to pay an annual fee to keep the card open or secure the credit limit with your own money.

Sitting back and waiting for everything to blow over works well in a natural disaster, but it’s not a great tactic when you need to repair your credit. You face legal action, personal consequences and financial instability when you aren’t proactive about your credit health. Start looking into credit repair assistance, so you don’t have to put your life on hold for seven, 10 or even 15 years.

Sources:

http://www.myfico.com/crediteducation/creditscores.aspx

http://www.experian.com/blogs/ask-experian/when-negative-information-will-be-removed-from-your-credit-report/

http://www.rd.com/advice/saving-money/5-smart-ways-to-reduce-stress-around-personal-debt/

http://www.forbes.com/pictures/eegk45gidm/credit-scores-dont-stop-with-credit/#54e166fd44c6

Better Credit Score Means Cheaper Car Insurance

Car-Insurance-Credit-Score-Ovation-Credit

There are many benefits to having a better credit score. If you’re buying a house, it will be obvious you need excellent credit first. The difference in your interest payments could run $50,000 or more if you don’t bother.

The same situation exists when you’re getting car insurance.

That’s right, even your car insurance premiums are influenced by your FICO score. So improving your credit rating can save you money every month — and not just on your debts.

Meet the Credit-Based Insurance Score

There’s a credit rating for insurers to use that’s provided by FICO. It’s a credit-based insurance score, and most car and home insurance companies use it.

Home insurance rates can go up quite a bit if your score drops and a claim is made. This is because the risk of a fraudulent claim is higher if you’re struggling to afford the payments.

Car insurance companies are also known for jacking up premiums after claims are made. This is why many choose to pay off the cost of repairing the other person’s vehicle after a minor accident.

In reality, a poor credit score can result in a huge increase in your premiums. One incident can cost you $5,000 to $10,000 or more in the course of a year. The difference is an additional $400 to $800 out of your pocket every month to stay on the road.

How Does the FICO Auto Insurance Score Work?

Here’s how FICO calculates your auto insurance score:

  • Payment history (40 percent),
  • Outstanding debt (30 percent),
  • Credit history length (15 percent),
  • Pursuit of new credit (10 percent) and
  • Credit mix (5 percent).

This is only a little different than the traditional FICO score breakdown. You see 5 percent more importance on your payment history in the credit-based insurance score. This difference comes from a reduced emphasis on your credit diversity.

Remember: The Laws Vary by State

Not all states allow car insurance providers to use credit-based FICO scores. You can find your state’s department website and see how things stand where you live.

If you’re lucky, your state is one of the few that doesn’t allow insurers to use your credit score. This will prevent your bad borrower status from potentially costing you a lot of money due to your premiums going up. In one example on ConsumerReports.com, you can see more than $1,300 added to your monthly cost.

This instance is based on a single moving violation by a lone driver in Kansas. You can only imagine how much it would cost if you ran into multiple issues. You might even fail to qualify for insurance through certain strict insurers. It’s possible you’ll end up having to pay for a year upfront too.

The Problem With Credit Scores and Insurance

You might find your monthly costs getting higher all the time. A single moving violation could mean the difference in being able to pay your debts. This means you might be digging yourself further into debt even though the matter is out of your control.

All you can do is prepare for the worst. If your insurance premiums go up, you want the infraction to have minimal financial impact.

You can expect your premium to rise $100 or more per month from a single moving violation. Still, this is better than paying an extra $1,000 each month to stay on the road.

You can improve your credit rating and save money on car insurance. Since this is a cost factor, you can renegotiate on your monthly premiums when your FICO score is high. If the insurer refuses to negotiate — another insurance company may be eager to give you a better rate.

Does Your Insurance Affect Your Credit?

One saving grace is that this is a one-way relationship. Your FICO score impacts your car insurance costs, but your insurance won’t impact your credit score.

Since it’s not an inverse relationship, failing to pay your car insurance on time (or at all) will not hurt your credit. You won’t see a reduction in your FICO score — even if you end up in a financial disagreement with your insurer.

How to Save With a Better Credit Score

You can actually reduce your monthly payment amount by renegotiating your insurance terms. Wait until your FICO score goes up quite a bit before you do this. That way, you’ll be able to command a much better rate.

If you’ve had any increases to your auto insurance premiums, this might get reversed. Your decreased risk as a result of your better borrowing status could balance out the damage. Therefore, your monthly insurance costs could go down.

Conclusion

You want to better your credit rating and have access to quality financing opportunities. Whether you plan to start a small business or buy your dream home — your credit rating can make or break your dream.

With poor credit, not only will you get rejected for credit cards and loans more often, but your debts will cost you more. Even your car insurance — a recurring monthly expense — can go up as a result of poor credit.

In closing, it is clear that a strong FICO score comes with many rewards.

7 Must-Do’s Before Shopping for a Mortgage

Mortgage-Ovation-Credit

Owning your own house is a hallmark of independence as well as a major investment. It is one of the most exciting milestones in your life. However, shopping for a mortgage is decidedly less invigorating. You have your credit score to think about and whether you even qualify. It can be a lot of work, so start early. Take care of the following before you start shopping for a mortgage.

1. Your Credit Score

The first step is your credit score. How high or low it is will have a big effect on the mortgage you receive. In general, a higher number translates into lower payments. According to the Seattle Times, getting a mortgage when your credit score is less than 660 (or for some lenders, less than 680) means that you are going to need to put more money down and you could have to pay additional fees. In general, to get the best rate, you will need a credit score of more than 750.

2. Qualifying for Credit

Further, you may need a minimum credit score to even qualify for a home loan. “While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum,” says former U.S. Department of Housing and Urban Development official Vicki Bott. In other words, it doesn’t matter how much money you make, how little you owe or how much you can put down — you could still be denied a mortgage.

3. Deciding on a Mortgage Budget

Would-be homeowners should also decide on a budget. Any loan from the Federal Housing Administration will require that your mortgage payment not exceed 31 percent of your income except under specific circumstances — and even that could be on the high side. The Credit Union National Association advises that your mortgage payment not be more than 28 percent of your gross pay, and Dave Ramsey suggests a maximum of 25 percent of your take-home pay. Being more conservative with your budget means that you have extra cash available for the type of expenses homeowners have to endure, such as a new roof or maintaining your furnace.

4. Pay Off Debt

One top suggestion is to pay off any debts you have before you begin the mortgage application process. Credit card debt can be a real hindrance to getting approved, but other debts play a role as well. Car loans, medical bills and student loans can eat away at your monthly cash flow. Aside from impacting your credit score, it may also play into the amount that the bank is willing to approve and the amount of payment you can comfortably make each month. You will need to keep debt payments in mind as you decide on a budget. Making a plan to pay them off before applying for a mortgage means one less thing to think about.

5. Save Money

Remember that buying a home requires certain upfront costs. You will need to cover closing costs as well as a down payment. Many conventional loans are going to require 20 percent down. Even if you have enough in your bank account to cover that lump sum payment, will you have enough left over to weather a storm if a worst-case scenario happens and you lose your job or the home requires extensive work before you have time to rebuild your savings? These are important issues to consider.

6. Credit Report Review

Before you attempt to purchase a home, you should also have someone review your credit report. This way, you can identify any potential issues BEFORE you begin applying for loans. At Ovation Credit Services, we review your report to see if there’s anything affecting your score before you start the mortgage process and can advise you on the next steps to take to improve your odds of getting the best home loan rates and terms possible.



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7. Credit Repair Is Possible

If your credit report needs some work or you aren’t happy with the interest rates and terms your credit score will garner you, remember that credit repair is possible. Working with an established company like Ovation helps ensure that you aren’t penalized for debts that have already been paid or settled. We can also help you identify areas you could target to improve your credit score.

It’s tough to take a hard look at whether you can actually afford to buy a house and what your price range really gets you. Having an outside party take a look at your credit report gives you a more objective perspective into what lenders like to see and the factors that play into your credit score as well as the impact your credit score has on the terms and interest rate you receive for your mortgage.

Sources:

HGTV: What to Know Before Buying Your First Home
http://www.hgtv.com/design/real-estate/what-to-know-before-buying-your-first-home

Dave Ramsey: 5 Must-Dos Before You Buy a Home
https://www.daveramsey.com/blog/5-must-dos-before-buy-home

Seattle Times: 6 Must-Dos Before Buying a Home
http://www.seattletimes.com/business/6-must-dos-before-buying-a-home/

U.S. News & World Report: 7 Things to Always Do Before Buying a Home
http://money.usnews.com/money/blogs/my-money/2014/06/25/7-things-to-always-do-before-buying-a-home