For many, the consequences are immediate: difficulty accessing future loans, such as mortgages and car loans, higher interest rates, and even a reduction in available credit. Those who once had strong credit scores are now finding themselves in subprime territory, creating an urgent need for a solution to rebuild their credit health.

How Student Loan Delinquencies Impact Your Credit Score

Before the pandemic, student loan payments were a routine part of many borrowers’ financial lives. However, with the onset of COVID-19, the government paused payments for more than three years, providing much-needed relief to millions of Americans. During that time, borrowers were not penalized for missed payments, and late payments were not reported to credit bureaus, effectively giving millions a grace period.

But this grace period ended in September when borrowers were required to resume payments. For those behind on their loans, the damage to their credit scores is now becoming apparent. Research shows that a missed payment on a student loan can knock more than 150 points off a FICO score for someone with average credit. For those with subprime credit, the effects can be equally severe. These borrowers may lose access to favorable interest rates, and their ability to obtain new credit can be limited.

Rebuilding Your Credit with CreditStrong

The good news is that you don’t have to wait for your credit score to recover on its own. CreditStrong offers a way to actively rebuild your credit score. Through their range of credit builder loans for every need and budget, you can take charge of your financial future. These loans are designed to help you create a positive payment history, which is essential for rebuilding your credit after a setback like missed student loan payments.

With a CreditStrong credit builder loan that fits your needs, you’ll make regular, on-time payments that are reported to all three major credit bureaus—Equifax, Experian, and TransUnion. As you make these payments, your credit score will begin to improve over time. This consistent payment history shows creditors that you’re capable of managing debt, which will help raise your score by up to an average of 86 points, and ultimately increase your chances of qualifying for loans in the future.

CreditStrong is not just about rebuilding credit; it’s about regaining financial confidence whether you’re facing delinquencies due to student loans or other financial challenges.

Managing High Credit Utilization with Revolv

In addition to student loan delinquencies, many borrowers also struggle with high credit utilization—another factor that negatively impacts credit scores. When you use a large portion of your available credit, it signals to lenders that you may be overextended and could struggle to repay your debts.

If you’re dealing with high credit utilization as a result of student loan delinquencies or other debts, Revolv offers a smart solution. Revolv helps you manage and lower your credit utilization rate by giving you tools to pay down high balances more effectively. Keeping your credit utilization ratio under 30% is one of the best ways to protect your credit score.

By managing your credit utilization alongside your efforts to rebuild through CreditStrong, you’ll improve both the quantity and quality of your credit profile, which will make it easier to regain access to credit in the future.

The post Student Loan Delinquencies and Your Credit Score: How To Help Rebuild appeared first on Credit Strong.

However, the good and bad news is you’re not the only one affected by student loan forgiveness ending. Let’s consider a few other options you can use to start rebuilding your credit.

Ways to Rebuild Your Credit

1. Secured Credit Cards

Secured credit cards are a great option for individuals with limited credit history. You’ll need to provide a deposit, which serves as your credit limit. By using the card responsibly and paying off the balance on time, you can begin to rebuild your credit score. However, secured cards often come with higher interest rates and limited credit limits, which may make it harder to significantly boost your score quickly.

2. Become an Authorized User

If you have a family member or friend with a solid credit history, you can ask them to add you as an authorized user on their credit card account. This allows you to benefit from their positive credit history. While this method can improve your score, it often requires trust in the person whose account you’re joining, and it might take longer to see substantial results.

3. Credit Builder Loans

Credit builder loans are designed for people with no or poor credit. They allow you to take out a small loan, which is placed in a savings account until it’s paid off. These loans report your payment history to the credit bureaus.

4. Pay Off Debt Strategically

If you have existing debt from student loans, credit cards, or other sources, paying it down strategically can help. Focus on high-interest debt first, or target credit cards with high balances to reduce your credit utilization ratio. However, without an established credit-building plan, this method alone may take a long time to significantly improve your score.

5. Regularly Monitor Your Credit Report

It’s essential to keep track of your credit report to catch any errors that could be impacting your score. You’re entitled to a free credit report once a year from each of the three major bureaus, and reviewing it regularly will help you spot any issues before they affect your credit.

How long does it take to rebuild 100 points of credit?

If you have missed payments or collections: It might take 6–12 months to see a 100-point increase as you improve your payment history and reduce your outstanding debt. If you’re using a credit-building product and focusing on lowering credit card balances and paying off debts, you might see a 100-point increase in about 3–6 months, especially if you were starting with a score in the lower 600s or high 500s.

If you’re ready to rebuild your credit and improve your financial future by an average* of 86 points then, MAGNUM by CreditStrong — the largest credit builder in the nation, offers a great solution. It should be noted that MAGNUM is not intended to build savings and is an option for those who have cash, but not credit.

MAGNUM is also Ideal for:

• Immigrants who have cash but haven’t yet built a substantial U.S. credit history.
• Divorcees who may have had credit affected by joint accounts and need to rebuild their individual credit score.
• Borrowers who are facing the financial burden of student loan payments and need an effective way to lower their credit utilization and rebuild credit.

How MAGNUM Helps Rebuild Credit After Student Loan Forgiveness Ends

The end of student loan forgiveness is not just a financial challenge—it’s an opportunity to improve your credit if you know how to manage it. Here’s how MAGNUM can help:

1. Reports to All Major Credit Bureaus
   MAGNUM reports your on-time payments to the three major credit bureaus helping you build a strong credit history. If you’ve been affected by student loan payments and higher debt, MAGNUM will show your commitment to repaying loans, which will gradually improve your credit score.
2. Focuses on Building Your Credit, Not Savings
   Unlike other credit-building programs that combine savings with credit building, MAGNUM is designed to focus solely on improving your credit score. This is especially beneficial if your primary concern is repairing or rebuilding your credit after the resumption of student loan payments. No distractions, just a direct path to better credit.
3. Low Interest Rates and Affordability
   MAGNUM offers low-interest rates, so you don’t have to worry about accumulating expensive interest while working to rebuild your credit. With the added financial pressure of student loans, MAGNUM’s affordable terms make it an ideal choice for anyone looking to improve their credit without risking further debt.
4. Reduces Credit Utilization
   Credit utilization, which accounts for 30% of your credit score, is likely to rise as you take on more debt due to resuming student loan payments. MAGNUM helps reduce your credit utilization by providing a flexible credit line that you can pay off monthly, which will directly improve your credit score.
5. Perfect for Those With Limited Credit History
   If you’re an immigrant, a divorcee, or simply someone who has struggled to build U.S. credit history, MAGNUM is a good solution. MAGNUM helps establish or rebuild credit without needing an existing credit history, making it ideal for individuals who need to start from scratch or improve their current standing.

There’s no hard credit pull, check out what MAGNUM plan is right for you and get started on rebuilding bigger credit today!

*Individual results may vary

The post How to Rebuild Big Credit After Student Loan Forgiveness Ends appeared first on Credit Strong.

In this article, we’ll discuss the impact of the end of student loan forgiveness on your credit score and show you how you can quickly lower your credit utilization rate, improve your credit score, and put yourself on a path toward better credit opportunities.

Why Your Credit Score Could Drop After Student Loan Forgiveness Ends

When the student loan forgiveness programs end, many borrowers will face the reality of resuming student loan payments. This can lead to several financial challenges, including:

• Increased Debt Load: Resuming payments on student loans increases your overall debt, which in turn raises your debt-to-income ratio. If your debt load becomes too high, it can negatively affect your credit score.
• Higher Credit Utilization: Many borrowers may have relied on credit cards or personal loans to cover expenses during the pause in student loan payments. This could lead to an increase in credit utilization, which plays a major role in determining your credit score.
• Missed Payments: If you miss payments, even once, it can cause your credit score to drop by 50-100 points or more. This can make it harder to get approved for loans, credit cards, and other financial products in the future.

On average, people affected by the end of student loan forgiveness could see their credit score drop by 30-50 points, especially if their credit utilization spikes due to increased debt.

Why Credit Utilization Is So Important

Your credit utilization rate is the amount of your available credit you’re currently using. This figure accounts for 30% of your credit score. Ideally, you should aim to keep your utilization below 30%, though lower is always better. If your utilization rate exceeds 30%, it can indicate to lenders that you may be relying too heavily on credit, making you a higher-risk borrower.

For many, a drop in their credit score is a result of high credit utilization, especially after taking on additional debt to cover resumed student loan payments. When your credit utilization is high, your credit score suffers, and you may find it more difficult to qualify for better credit limits or lower-interest credit cards.

How Revolv Can Help Lower Your Credit Utilization and Improve Your Credit Score

If high credit utilization is one of the reasons your score is dropping after student loan forgiveness ends, CreditStrong’s Revolv product can be an ideal solution. Here’s how Revolv can help you improve your credit score and achieve better credit card limits:

1. Fast Impact on Credit Utilization
   One of the best ways to quickly improve your credit score is by lowering your credit utilization. Revolv helps you do this right away. As a revolving credit product, it acts like a credit line that provides flexibility to reduce the percentage of your available credit that you’re using. This is important because when you lower your credit utilization rate, your credit score will improve almost immediately.
2. Better Credit Card Limits
   Lenders and credit card issuers pay close attention to your credit utilization rate when deciding whether to offer you a higher credit limit. By using Revolv to lower your utilization rate, you’ll increase your chances of getting approved for better credit card limits, which in turn helps you build a healthier credit profile.
3. Helps You Stay Within the Ideal 30% Utilization Threshold
   If you’ve been using a significant portion of your credit limit, Revolv will allow you to keep your utilization rate below 30%. Staying under this threshold signals to lenders that you are managing credit responsibly, which is crucial for improving your credit score over time.
4. Credit Building and Reporting to All Major Bureaus
   Revolv reports to all three major credit bureaus—so every on-time payment you make helps to build your credit. The more consistent you are with your payments, the more your credit score will improve, making it easier for you to qualify for better loans, credit cards, and even mortgages.
5. No High Interest Charges
   Unlike credit cards that carry high interest rates, Revolv offers a low-interest credit line designed to help you build credit without the fear of falling into a high-interest debt trap. The affordable terms mean that you can focus on paying down balances without worrying about accumulating costly interest charges.
6. No Hard Credit Check
   Revolv doesn’t require a hard credit check to apply. This means that your credit score won’t drop further when you apply, which is ideal if you’re trying to rebuild your credit after the end of student loan forgiveness.

Why Revolv Is the Best Choice for Those Looking for Better Credit Card Limits

When your goal is to lower your credit utilization and improve your credit score, Revolv stands out as the most effective and affordable solution. Here’s why Revolv is a game-changer:

• Direct Impact on Credit Utilization: Revolv immediately lowers your credit utilization rate, which is one of the quickest ways to improve your credit score.
• Improved Credit Limits: By lowering your utilization, you increase your chances of receiving better credit card limits from lenders.
• Low Interest Rates: Revolv offers low interest rates, meaning you can manage your credit without falling into debt.
• Credit Reporting: Revolv reports to all three major credit bureaus, ensuring your positive payment history helps boost your score.
• Flexible and Accessible: Revolv is designed to be accessible to individuals with varying credit histories, helping everyone improve their credit on their own terms.
• Build savings: Supercharge your credit profile with Revolv with optional monthly savings contributions. Every optional monthly payment goes to your savings, and if you don’t want to make a payment that month, you can simply set it to $0 beforehand.

Conclusion

With student loan forgiveness coming to an end, many borrowers will face a drop in their credit scores, particularly due to high credit utilization. But CreditStrong’s Revolv offers a simple, effective way to combat this problem. By using Revolv to lower your credit utilization rate, you can see quick improvements in your credit score, opening doors to better credit card limits and financial opportunities.

The post How to Quickly Improve Your Credit Score After Student Loan Forgiveness Ends appeared first on Credit Strong.

As student loan forgiveness programs come to an end, many borrowers face an additional serious concern: the potential drop in their credit scores. For many individuals, student loans have been a major factor in their credit history, and without the relief of forgiveness, they could see their credit scores suffer. However, there are several ways to rebuild your credit.

In this article, we’ll explore the ways student loan forgiveness ending could impact your credit score and show you several strategies for improving your credit.

Why Your Credit Score Could Drop When Student Loan Forgiveness Ends

Student loans are often one of the largest debts many people carry, and with the end of student loan forgiveness programs, borrowers will have to resume payments or deal with new repayment terms. This sudden shift can negatively affect your credit score in several ways:

• Missed Payments: If borrowers miss payments when the loans resume, they can face significant drops in their credit score. Missing even a single payment can cause a decline of 50-100 points depending on your prior credit history.
• High Credit Utilization: Some borrowers might need to use credit cards or take out other loans to cover student loan payments, leading to an increased debt load. High credit utilization—especially above 30% of your available credit—can lower your score significantly.
• Increased Debt Load: With student loans back in action, your debt-to-income ratio may rise, and this could hurt your credit score, especially if it’s already high. Credit bureaus pay close attention to your overall debt level.

In fact, studies show that borrowers may see their credit score drop by 30-50 points once student loan payments resume. This drop can make it even harder to secure loans or credit in the future, worsening the situation for many.

Multiple Ways to Improve Your Credit Score

While the end of student loan forgiveness can make things feel bleak, there are several strategies to rebuild and improve your credit score over time. Some common methods include:

1. Pay Your Bills on Time
   Timely payments are one of the most important factors in determining your credit score. Even if you’re struggling with student loan payments, prioritizing bills like utilities, rent, and credit cards can help prevent further damage.
2. Reduce Credit Card Balances
   High credit card balances can hurt your credit score due to credit utilization. Work to pay down your credit card balances and keep them under 30% of your credit limit.
3. Become an Authorized User
   If you have a family member or friend with good credit, ask if they would be willing to add you as an authorized user on their credit card. This can help boost your credit score by piggybacking off their positive credit history.
4. Use a Credit Builder Loan
   Credit builder loans are designed to help individuals with low or no credit to improve their scores. These loans typically require small monthly payments, which are reported to credit bureaus to show consistent, positive payment behavior.
5. Check Your Credit Report Regularly
   Errors on your credit report can drag down your score. Regularly checking your credit report can help you catch inaccuracies and dispute them with the credit bureaus. You’re entitled to a free credit report every year from each of the major credit reporting agencies.

Why CreditStrong’s Instal Program is One of the Best Solutions for Rebuilding Your Credit

While all of the methods above can help improve your credit, CreditStrong’s Instal program offers an effective and affordable solution, especially for those affected by the end of student loan forgiveness.

Here’s why Instal is a great tool for rebuilding your credit while building savings for the lowest price:

1. Affordable and Flexible Payment Plans
   Unlike high-interest credit cards or loans, Instal offers affordable monthly payments that fit your budget. No need to worry about overextending yourself financially—this program was designed to be accessible and flexible.
2. Build Credit and Savings Simultaneously
   What sets Instal apart is its dual benefit: as you make payments, you’re building your credit and saving money at the same time. The money you pay goes into a FDIC-insured savings account, which you can access once the loan is paid off. It’s a powerful way to grow your credit while also building your financial security.
3. No High-Interest Rates
   Many credit-building loans come with high-interest rates, making it hard to break the cycle of debt. Instal has low interest rates, meaning you can focus on making consistent payments without worrying about getting trapped by high-interest charges.
4. Reports to All Major Credit Bureaus
   The Instal program reports to all three major credit bureaus helping you rebuild your credit score over time. This means that each on-time payment can increase your creditworthiness.
5. No Hard Credit Check
   One of the key benefits of the Instal program is that it doesn’t require a hard credit inquiry. This means your score won’t drop when you apply. It’s an excellent option for people who need to rebuild their credit without hurting it further.

How Instal Can Help You Overcome the Student Loan Setback

With student loan forgiveness ending, many borrowers are faced with financial uncertainty. However, CreditStrong’s Instal program is a powerful tool to help you bounce back.

By enrolling in Instal, you can:

• Rebuild your credit score with on-time payments reported to all three credit bureaus.
• Save money through the program’s unique savings feature, building a financial cushion for the future.
• Avoid high-interest rates that come with traditional credit-building options, making it easier to stick to a budget.
• Regain control over your financial future and improve your chances of qualifying for loans, credit cards, and mortgages in the future.

Conclusion

While the end of student loan forgiveness programs can cause a serious drop in your credit score, it doesn’t have to be the end of your financial journey. By employing strategies like paying bills on time, reducing credit card balances, and checking your credit report, you can improve your score. If you want to start rebuilding your credit for the lowest price, Instal by CreditStrong offers a comprehensive, affordable, and effective option.

If you’re ready to take charge of your credit and financial future, Instal can help you make the most out of this challenging time.

The post How Student Loan Forgiveness Ending Could Affect Your Credit Score appeared first on Credit Strong.

If a collection account appears on your credit, it highlights a crucial issue with your financial health, which you should immediately work to improve. Understanding how to avoid entering collections and how to improve your score for the long term is vital to maintaining healthy credit. In this article, we examine:

• What happens when you pay off collections 
• How paying off collections increases your credit score
• How to improve your credit score after paying off collections 

What Is a Collection Account?

A collection account is a record on your credit report that notifies lenders and other financial institutions that you have defaulted on paying a debt. It signifies that you have an unpaid debt over 180 days due and that your creditor has written off the debt as a loss and sold it to a collection agency. 

The collection agency that buys off the debt from the lender reports the status of your account to the credit bureau, which can have serious repercussions on your credit. It could flag you as a financial risk to creditors, making it difficult for you to boost your credit score.

When your account enters collections, collection agents start hounding you to pay your debt. It’s unnecessary to check your credit report to verify your credit account status because the agents will frequently call, email, or mail you to settle the debt. 

If your account is in collections, paying off the debt is beneficial because otherwise, your credit could be seriously harmed.

How Does a Collection Account Affect Your Credit?

A collection account on your report is one of the most harmful items that can appear on your credit, especially if your credit score was previously good. It can decrease your credit score by up to 100 points because it affects your payment history, which is responsible for about 35% of your credit.

In the past, a collection amount over $100, regardless of its payment status, could impact your credit for up to seven years from the date the account was sent to collections. Over time, the impact of collections on credit has shifted and is now influenced by a few factors, including:

• The type of debt—Major consumer credit bureaus (Experian, TransUnion, and Equifax) no longer list paid medical collections or unpaid collections for outstanding medical bills of less than $500 on your report. This ensures that your credit is not affected at all
• The type of FICO^® Score—FICO Scores 9 and 10 ignore paid collections, and unpaid medical collections have a smaller negative impact on your score. The other widely used version, FICO Score 8, does not ignore paid collections or medical bills. It lowers your score if a collection for a debt of $100 or more appears on your credit report
• The VantageScore^® version—VantageScores 3.0 and 4.0 ignore paid collections and unpaid medical collections and will therefore not harm your score

Will Paying Off Collections Increase Your Credit Score?

Whether your credit will improve after paying off collections depends on the nature of the collection account and the model used to calculate your score. Newer models may cause your score to increase, while some older models will have no effect. 

See the table below for the scoring models and their impact on the improvement of your scores:

While recent models are more likely to reflect positively, older FICO models, including the ones used for conforming loans, may not recognize the positive impact of paying off a collection.

However, based on guidelines set by the Federal Housing Finance Agency, the industry is shifting towards newer scoring models, which will lead to an increase in the overall impact of paying off collections on credit.

How Much Will my Credit Score Increase After Paying Off Collections? 

There’s no specific figure that would be an accurate answer to this question because every credit report is unique. The improvement also depends on how the collection account affects your credit score. However, you may expect the credit score to be boosted by the amount that was deducted when the collection was placed on your record.

This means that if you lost 100 points due to collections on your account and you pay off the collections, you may get your score boosted by 100 points.

How Long After Paying Collections Will the Credit Score Improve?

It could take a few weeks to months to see a noticeable improvement in your credit score after paying off a collection. The time varies depending on individual factors and the type of scoring model used. Here’s what a general timeline looks like:

1. The collection agency updates its records and then reports the payment to the credit bureaus
2. The credit bureaus update your credit report within one to two months. Note that the collection account stays on your report for up to seven years from the date you defaulted in paying your debt, but the report will indicate that the collection has been paid
3. Once your credit report is updated, the credit-scoring model, such as FICO, will use the new information to recalculate your score. If it’s a newer scoring model, you may see an improvement in your credit score immediately

Some credit bureaus help with time-sensitive cases. Contact each credit bureau to find out their policies on fast-tracking your credit score improvement.

How To Remove Collections From Your Credit Report

To remove a collection debt from your credit report and clean up your credit score, select any of these options:

1. Attempt goodwill deletion 
2. Request a Pay-for-Delete agreement
3. Wait for seven years

Attempt Goodwill Deletion

This method involves writing to the collection agency and proposing that they remove the account from your report as a “goodwill gesture.” You explain your situation to them, hoping that they succumb to your appeal, but there’s no guarantee they’ll agree.

Request a Pay-for-Delete Agreement

This approach allows you to negotiate with the collection agency to pay the debt and have it removed from your history. Here’s how it works:

• Send a written request to the collection agency asking to settle the debt in exchange for deleting it from your report
• Wait for a written response from the collector before taking any next steps

Wait for Seven Years 

It takes seven years for collection accounts to age off, after which they automatically fall off your account. You may choose to wait out the seven years. 

Ways To Build Your Credit After Collections

Building and maintaining a good credit score indicates that you’re financially stable, reliable, and responsible. It also determines whether you qualify for loans and how much deposits will be required for crucial payments like rent or mortgage. 

To build your credit after collections, follow the two most effective methods: 

1. Make timely payments—Paying your debts on time over six months can help you establish a positive payment history and impact your credit score positively
2. Leverage revolving credit—Use revolving credit including various lines of credit like credit cards and home equity lines of credit, which remain open as you establish a payment history

An ideal credit building solution like CreditStrong helps you maximize both options through its various account types. This positively impacts the factors that determine 90% of your FICO Score. 

Build Stronger Credit With CreditStrong

CreditStrong is an independent FDIC-insured community bank by Austin Capital Bank that offers an effective solution for consumers who want to make positive changes in their credit scores. It is designed to help you build credit, whether starting from the beginning or recovering from past damage and works with the major credit bureaus to ensure absolute transparency. 

A CreditStrong account combines a secured consumer installment loan or a revolving line of credit with a savings account, allowing you to build your credit score and savings simultaneously. 

Three Main Types of CreditStrong Accounts and Their Differences

CreditStrong offers three main types of FDIC-insured accounts: Installment (Instal), Revolving (Revolv), and MAGNUM. The table below explains what each of them offers and how their features differ:

Create a CreditStrong account using the following steps:

1. Click here to get started
2. Choose any of the accounts (MAGNUM, Revolv, or Instal) based on your credit goal:
   • MAGNUM—Starting at $30 a month
   • Revolv—$99 a year
   • Instal—Starting at $28 a month
3. Submit an online application with your relevant details
4. Track your progress, savings, and payments via your credit dashboard

The post If a Collection Account Is Deleted, Does Your Credit Score Increase—Answered appeared first on Credit Strong.

Adverse credit report entries generally remain for seven years; however, the negative impact should decline over time. If other reported accounts are current and remain in good standing, substantial improvement is attainable in under one year.

When credit reports contain other negative entries, rebuilding will likely take several years, but remaining current on all existing accounts and seizing opportunities for establishing and building new credit can help expedite the process.

How Does Debt Settlement Work?

Debt settlement companies, also commonly called debt relief agencies, negotiate with creditors on behalf of struggling consumers. The most common strategy involves reaching an agreement that “settles” the account with a lump sum payment that is lower than the total balance.

According to Experian, settlement agreements commonly involve paying an amount that is reduced by 20% to 50%. Because a debt settlement results in not paying the balance in full, it will negatively impact your credit.

Additionally, late payments often accumulate during the negotiation process, which may worsen your credit score. Debt settlement companies often encourage halting payments as a means of motivating the creditor to consider a reduced settlement amount.

Most settled debts involve unsecured debt such as credit cards where the lender lacks leverage in the absence of any collateral (assets) backing the loan.

For example, lenders have more leverage with secured debts such as auto loans or home mortgages, where these assets may be repossessed and used for recouping losses.

From the creditor’s view, settling the account for a lesser amount represents a much better option in comparison to receiving nothing.

Although laws exist prohibiting a debt settlement company from imposing upfront fees, they typically require compensation equivalent to a percentage of the settlement amount or a percentage of the reduction achieved.

The fees charged by many national debt relief providers often reach 20 to 25%. For example, if a $20,000 account resulted in a debt negotiation of only $10,000, the consumer would pay $2,000 to $2,500 in debt settlement program fees.

Some consumers engage in “do-it-yourself” negotiations with creditors as an alternative to working through a professional debt settlement agency and incurring the applicable fees.

How Does Debt Settlement Affect Your Credit?

The National Foundation for Credit Counseling (NFCC) states that forgiven debt settlement plans may “wreak havoc” on credit scores. Further, the NFCC explains that each missed or late payment that occurs amid negotiations or while gathering up a lump sum worsens credit scores.

According to TransUnion, a consumer’s credit history with the credit reporting agency (aka credit bureau) will often list settled entries as “settled for less than full balance” or a similar description with a negative connotation or undertone.

Regarding the resulting bad credit, settlements could reduce your credit score by over 100 points, which likely remains higher than if you had multiple accounts in debt collection that ended in bankruptcy.

Keep in mind that your credit utilization rate could also drop, particularly when credit card debt settlements result in formally closing the credit account. Credit utilization rates measure the percentage of your overall available credit that is currently in use, which we’ll discuss more later on in the article.

Generally speaking, anything less than 30% is considered a good credit utilization rate while 10% or less is the most ideal.

As it pertains to how settled debt arrangements translate to bad credit, Experian makes a distinction between these debt relief solutions and debt management plans, which are also commonly referred to as credit counseling programs that might involve debt consolidation.

Here, the credit counseling firms usually negotiate with issuers of credit cards or other credit accounts for reducing interest rates or lowering monthly payments. This process generally has a less adverse impact on credit scores because the principal amount (balance) is still paid.

How Long Does It Take to Recover from a Debt Settlement?

The duration needed for rebuilding credit after the settled debt payment process may vary. One consideration involves your new credit score, which basically represents the starting point as you enter the credit repair process to improve the status of your credit rating.

Although most individuals who complete a settled account will likely have a below-average or bad credit score, those with other existing credit accounts in good standing generally are best positioned for swiftly restoring their credit history and achieving a good credit score.

Those with other existing accounts, such as credit cards or personal loans, will continue making timely payments and more rapidly improve their bad credit history. Similarly, those with a long, mostly positive credit report often experience credit repair in less than six months.

Consumers seeking to rebuild their bad credit should begin taking positive steps—like those that experts often recommend after emerging from bankruptcy.

For example, paying all bills on time, finding the best credit cards for those with poor credit scores, or pursuing a credit builder loan. In most instances, reasonable expectations for a post-debt settlement recovery range from approximately 12 to 24 months.

Is Debt Settlement Worth It?

A recent study indicated that the average consumer saved $2.64 for each dollar imposed in fees by debt settlement companies. Determining whether a settlement arrangement is “worth it” is potentially subjective and based on individual circumstances.

Freedom Debt Relief, among the nation’s largest providers of debt settlement services and debt consolidation loans, explained some of the common distinctions between debt settlement and common alternatives. Some of their findings revealed the following:

Pros

• Unlike some alternatives that reduce interest rates, debt settlements will reduce the principal balance owed.
• Debt consolidation loans often come with higher fees and processing costs.
• Financially, debt settlement agreements commonly rival or surpass the savings achieved under Chapter 13 bankruptcy without enduring the more devastating impact on your credit score.

Cons

• Most negotiation attempts involving secured debts including vehicle or mortgage loans prove futile.
• Expect creditor or collection agency calls after due dates pass, which is usually necessary for reaching the negotiating table.
• During the process, creditors may bring a civil action to recoup lost compensation.
• The potential tax liability (discussed below)

The Internal Revenue Service (IRS) may pursue taxes based on the savings (difference) between the amount of the debt owed and the negotiated settlement amount that was actually paid if it exceeds $600.

From a broader perspective, substantial financial problems already exist when consumers either as individuals or in families deem it necessary to enter settlement agreements with professional debt relief companies or most other alternative options.

Therefore, many of these are reactionary or remedial measures primarily focused on minimizing the damage.

Conversely, while also neutralizing the impact of existing negative credit reports, more proactive credit-building options have a positive effect that may expedite the rebounding process.

How to Rebuild Credit After a Debt Settlement

Regardless of the outcome of debt settlement efforts, damaged credit is a likely result. Fortunately, several basic recovery strategies exist.

Use a Credit Builder Loan

As a division of Austin Capital Bank in Texas, CreditStrong is a pioneering organization that provides credit builder loans. As a type of installment loan, a credit builder loan deposits the loan funds into a savings account for the duration of the term.

The borrower makes an affordable monthly payment each month toward the balance. Meanwhile, CreditStrong regularly reports loan activity to the three major credit bureaus, which then improve your credit score.

After all the loan payments are paid in full, the funds in the savings account are released and available for the borrower. 

Don’t Miss out on Making Timely Payments

The Fair Isaac Corporation (FICO) is a leader in creating models that calculate FICO credit scores. According to FICO, the largest single factor that influences these calculations is payment history—equating to roughly 35%.

Lenders recognize the correlation between a borrower’s past payment history and the likelihood of future financial behavior; therefore, taking steps to get organized and ensuring timely payments is a critical practice.

Maintain a Healthy Mix of Credit

To a lesser extent than payment history, FICO score calculations consider whether consumers demonstrate responsibility using two or more different types or categories of credit accounts such as installment loans like car loans and revolving accounts like credit cards.

This “credit mix” influences 10% of your score.

Check Your Credit Reports Regularly

Consumers are eligible to receive a free copy of their credit report each year from Experian, Equifax, and TransUnion. With easy online access to an electronic copy of your credit report, the process is quicker and easier than ever. 

Closely reviewing the contents of your credit report annually is a strongly recommended practice that can identify errors that might adversely affect your credit, detect any possible instances of fraud, and is helpful with tracking progress when seeking to improve your score.

Dispute Any Errors on Your Credit Report

As you review your credit report, promptly address any potential errors that exist.

Today, the credit bureaus each have easy-to-use website applications for formally disputing credit report entries, which may or may not also involve notifying the original creditor or collection agency.  Keep in mind that submitting any supportive documentation is important.

Keep a Low Credit Utilization Ratio

Remember, the formula for calculating a consumer’s credit utilization rate is: 

Credit Utilization Ratio = Total Current Debt / Total Available Credit 

Consider the following example:

The consumer has two credit card accounts with combined balances of $400, each with a maximum credit line (limit) of $1,000.

$400 / $2,000 = .20 or 20%

The rule of thumb is to maintain a credit utilization rate (ratio) below 30%. Lenders recognize that consumers with credit card balances approaching the limit might be overextended and experiencing some type of financial difficulty.

Consumers facing credit-related challenges that might consider pursuing a debt settlement program should do their homework and compare the various plans offered by professional settlement companies. Assess the fees imposed, reputation, and any potential alternatives.

The good news for those struggling with paying their debts or those with past credit problems is that you can recover.

For example, taking some positive steps by avoiding large, unnecessary credit card purchases, creating a written budget, paying all bills on time, and considering some credit-building options is a good start!

FAQs

How Long Will Debt Settlement Stay on Your Credit Report?

Most negative credit entries reported to credit bureaus remain visible and impact your credit score for seven years, except for a Chapter 7 bankruptcy, which extends for 10 years.

The debt settlement typically generates two or more types of adverse credit report entries. One occurs after agreeing and paying off the settlement amount, the account description on your credit report might change to “paid for settled amount” or something similar.

Here, the description has a somewhat negative connotation compared to “paid in full” or a similar description. This results from failing to pay the full account balance as stated in the terms of the agreement.

The debt settlement process will also likely result in late or missed payments being reported. This occurs because many creditors will not engage in negotiated settlements until an account has become delinquent, which is an indicator of risk for default.

With credit card debt settlements, the account might soon close or otherwise become inactive, which reduces your overall available credit limit. This may inflate your credit utilization rate to unfavorable levels, such as a rate exceeding 30%.

How Long Does Debt Settlement Affect Your Credit?

Although all negative credit entries remain for at least seven years, the impact of these reporting entries usually diminishes over time. Depending on the circumstances, a debt settlement often results in a credit score drop of 100 points or more initially.

As the years pass, the debt settlement becomes less consequential in the scoring calculations. Keep in mind that those with an otherwise good credit history might experience a less dramatic impact such as a 100-point decline from 780 to 680, which is still a mid-range score.

Meanwhile, you might begin building credit with other types of loans or financing that offset prior declines in your credit score. 

The post How Long Does It Take to Rebuild Credit After Debt Settlement? appeared first on Credit Strong.

Debt consolidation involves acquiring a new loan or credit card and using it to pay off multiple outstanding debts, effectively combining them. It reduces the number of your monthly payments and may help you improve your repayment terms.

However, debt consolidation doesn’t reduce the total amount of debt you owe and can make your financial situation worse in certain circumstances. Here’s what you need to know about the process to determine if it’s right for you.

How To Consolidate Your Debt

You can use several different types of financing to make debt consolidation work, but the process is always fundamentally the same. It involves applying for new credit, using it to pay off your existing debt, then paying off the new account.

The two options consumers typically use to complete debt consolidations include the following:

• Debt consolidation loan: These are a type of personal loan. They let you combine your existing debts and then pay off the balance in monthly installments of principal and interest over a fixed loan term, usually three or five years.
• 0% interest balance transfer credit card: These cards let you transfer existing debts to them for a fee. They don’t charge interest for a limited promotional period of around 18 months, but your rate will increase significantly afterward.

It makes the most sense to perform a debt consolidation when you have outstanding balances spread across multiple accounts with high interest rates. As a result, it’s more common with credit card debt than with debts like auto or student loans.

For example, say you have three credit cards with the following balances, interest rates, and minimum monthly payments:

• Card 1: $3,000 at 16% with a $120 payment
• Card 2: $2,000 at 18% with a $80 payment
• Card 3: $2,800 at 14% with a $112 payment

You only have enough cash flow to make the minimum monthly payments on each card, which equal $312. In this scenario, it would take you eight years and 11 months to pay off every credit card balance, during which you’d incur $3,540 in interest.

However, if you qualify for a $7,800 consolidation loan with a 6% interest rate and a 5-year repayment term, your monthly debt payment would decrease to $151. At the same time, you’d get out of debt four years sooner and pay only $1,248 in interest.

Pros of Debt Consolidation

Debt consolidation can offer several significant benefits in the right circumstances. Here are the primary reasons to consider pursuing it.

Potential for More Favorable Terms

Generally, the primary reason to consolidate your debts is to lock in terms more favorable for your financial situation. Depending on your needs, credit score, and the type of debt used to execute the transaction, that can mean reducing your:

• Overall interest rate
• Total financing costs
• Time spent in debt
• Monthly payment

For example, if you use a debt consolidation loan, you can generally expect to pay between 6% and 36% interest and have a three- or five-year repayment term.

Alternatively, you could use a 0% interest balance transfer card. You’d receive an interest-free promo period between roughly 12 and 24 months, but your rate would return to regular credit card rates afterward.

Reduce the Number of Monthly Payments

Another common reason people pursue debt consolidation is to reduce the number of monthly payments they have to manage.

Keeping track of several due dates at once can be challenging when your net monthly cash flow is low or negative, but debt consolidation lets you combine some or all of them into one.

For example, say you have a variable income and are barely making ends meet. Each month, you’d need to track your due dates and paychecks to determine whether you have enough funds to fulfill your obligations.

Using a debt consolidation loan to pay all of them off would mean that you only have to keep track of a single monthly due date.

Opportunity to Improve Credit

In addition to reducing the financial burden of your outstanding balances, debt consolidation may help you improve your credit score, though the initial application for a new loan or credit card can cost you points.

Remember, debt consolidations are primarily about gaining more favorable terms. That always means reducing the number of payments you have to manage, and it also often means reducing the total payment amount.

Both of those make it easier to complete your monthly payments on time and in full. Since payment history is the most significant factor in your score, consolidation often improves your credit in the long run.

Cons of Debt Consolidation

Debt consolidation is beneficial in some circumstances, but it’s not ideal for everyone. Here are the reasons you may want to avoid it.

Potential Upfront Costs

Unfortunately, you’ll probably incur fees when you initiate a debt consolidation, whether you use a loan or a balance transfer card to complete the transaction. Before you apply for either, make sure you confirm that you can afford the upfront costs.

The origination fee is the charge to watch out for with debt consolidation loans. While they vary significantly depending on your credit score and lender, they often range from 1% to 8% of the principal balance.

Generally, you’ll pay less with a traditional financial institution such as a bank or credit union, while an online lender will be more expensive. Fortunately, you may be able to roll your origination fee into the loan balance if you can’t afford it.

Similarly, balance transfer cards usually charge a balance transfer fee between 3% and 5% of the amount you’re moving to the new account. However, a credit card company may let you execute the transaction for free during a brief intro period.

More Favorable Terms Aren’t Guaranteed

Debt consolidation can help you acquire more favorable debt repayment terms, but improvement isn’t guaranteed. In fact, most debt consolidations have pros and cons, benefitting you in some ways but forcing you to sacrifice in other areas.

For example, extending your repayment period often lowers your monthly debt payment, but it keeps you in debt for longer and may increase your total interest charges.

Debt consolidation is most likely to be favorable when it lowers your overall interest rate. Otherwise, the downsides may outweigh the benefits.

Consolidations May Require Good Credit

Whether debt consolidation is worth pursuing depends primarily on the terms of the credit account you use to replace your previous debts. Unfortunately, the best credit cards and loans require you to have at least a good credit score, if not an excellent one.

Since people interested in debt consolidation are often struggling to keep up with their current debt payments, they’re less likely to have good credit. That can make the strategy unavailable to the people who need it most.

When Is Debt Consolidation a Good Idea?

Debt consolidation is usually most beneficial when you have multiple debts with high interest rates and a good enough credit score to qualify for a new account with more favorable terms.

As a result, consumers often use it to consolidate credit card debt. The average credit card interest rate is 21.59% in 2022, and you can often lower your costs by refinancing into a personal loan or interest-free credit card.

That’s the best reason to consolidate your debts, but the tactic may also be beneficial if it helps you meet your obligations. That usually means getting a lower monthly payment or reducing their number. 

However, consolidating for those reasons can cost you in other ways, often by extending your time in debt or increasing your total interest expense.

For example, say you have private student loan debt and a credit card balance. Your current monthly payments total $700, and you’re on track to get out of debt in a year and eight months.

Unfortunately, you can’t afford to keep up with your payments any longer. You have to take out a consolidation loan that reduces your total monthly outflow to $400, but it doesn’t get you a lower interest rate.

That helps you avoid missing your monthly payments, but it also extends your repayment term to five years. You’ll stay in debt longer and pay additional interest charges since it’ll have more time to accrue at the same rate. 

When Is Debt Consolidation a Bad Idea?

Debt consolidation is inadvisable when it doesn’t improve your financial situation. Not only does it take time and money to execute, but it also hurts your credit score, and it’s not worth pursuing if you get nothing in return.

That often happens when your credit isn’t good enough to qualify for an account with more favorable terms. For example, say you have three credit cards with the following balances and interest rates:

• $4,500 at 18%
• $3,000 at 20%
• $5,000 at 24%

Multiplying each card balance by its interest rate, adding the results together, and dividing them by your total debt amount of $12,500 gives you a weighted average interest rate of 20.88%.

Your minimum monthly payment would be $375, and you’d need 23 years and eight months to pay off your balance. During that time, you’d pay $16,891.26 in interest.

Unfortunately, you’ve been struggling to keep up with your payments for months, causing your payment history and credit utilization to suffer. You have a 550 credit score, which lenders consider bad credit.

As a result, you can’t qualify for a debt consolidation loan from a traditional institution or any 0% interest balance transfer cards. You only get one loan offer from an online lender, but the interest rate is 30%, which is much higher than your current average.

There’d be no benefit to the credit card debt consolidation because your monthly payment would increase to $404, making it even harder for you to keep up with your debts. You’d also pay an origination fee and add a hard credit inquiry to your report.

Also Read: Credit Score Statistics

How Long Does a Debt Consolidation Stay on Your Credit?

Debt consolidations don’t appear on your credit report as distinct negative entries. Consolidation is a strategy, not an official form of debt relief like bankruptcy. As a result, only the steps you take to execute the process are visible in your history.

When you apply for your debt consolidation loan or 0% interest balance transfer card, the creditor will check your credit score to see if you qualify. That initiates a hard inquiry, which stays on your credit report for two years.

Next, you’ll use your new loan amount to pay off the old debt balances. They’ll stay on your credit report for up to ten years after you close them.

Finally, you’ll pay off the new debt. It’ll remain on your credit report as long as the account remains open. Once you pay it off, it’ll be visible for up to ten years as well.

Does Consolidating Hurt Your Credit Score?

Debt consolidation usually hurts your credit score initially because most consumers need to apply for a new credit account to complete it. That triggers a hard credit check, which takes points off your score.

Fortunately, the damage is usually insignificant. Your credit inquiries are only worth 15% of your FICO score, and one application is unlikely to cost you more than ten points.

You can also avoid the issue altogether if you use a pre-existing account to consolidate your debts, such as a home equity line of credit.

The process can impact your credit score in a few other ways in the short term, but they depend on your current outstanding debt and the account you use to execute the strategy.

Ultimately, consolidation usually hurts your score less than other forms of relief like debt settlement, and it will benefit your credit in the long term if it helps you make your future payments on time.

Before choosing the debt consolidation option, consider signing up for credit counseling with a local non-profit organization. They can offer you a debt management plan which may help you get out of debt without having to apply for a new account.

The post Is Debt Consolidation a Good Idea? appeared first on Credit Strong.

Late payments can happen to the best of us, whether it’s due to a job loss, financial crisis, or a financial emergency. Unfortunately, regardless of the reason, they will affect your credit score. 

They won’t stay on it forever, though—and there are ways to both prevent them and minimize the adverse results that they have. Still, you may be wondering—how long do late payments stay on your credit report? Here’s all you need to know about late payments and their effect on your finances.

How Different Entries Affect Your Credit Score

Equifax, Experian, and TransUnion, the three major credit bureaus, compile the data that creditors report. This includes:

• Late credit card payments
• Late student loan payments
• Collection agency activity
• Other missed payments toward debts 

Entries showing late payments, often referred to as delinquencies, remain on your credit report for seven years. This won’t change regardless of whether you pay the past due amount or not.

There is one exception—bankruptcy may remain on your credit bureau report for up to ten years. More precisely, a Chapter 7 bankruptcy will remain for up to ten years, while a Chapter 13 bankruptcy generally remains for seven years.

Positive information, such as current credit card accounts in good standing, stays on your credit report as long as they remain active. Hard inquiries stay for two years, while prior loans that have been paid as agreed remain for ten years.

In general, time matters, so a recent late payment will have a more adverse effect on your credit score. This also means that creating newer positive credit report entries can help counter the effects of lingering late payments. Those effects should gradually lessen over the years after the initial report to the credit reporting agency. 

What Is Considered as a Late Payment?

Payments only get reported to the credit bureaus if they are 30 days late. This means that if you are a day, or even a week, late on your payments, it won’t hurt your credit. Don’t forget that fees and penalties usually accrue for paying late.

According to the Consumer Financial Protection Bureau (CFPB), credit card payments sent via mail not received before 5 p.m. on the due date are deemed as late. If the payment is made through the mail and the due date falls on a Sunday, holiday, or other days without mail service, the deadline is 5 p.m. on the next business day. The extra 24 hours generally does not apply to payments made electronically.

The minimum payment must be received by the due date listed on the statement. Partial payments that are below the minimum amount or any transaction returned for insufficient funds following the due date are also considered late.

The payment due date should not be confused with the statement date or the reporting date:

• Statement date—the date when the bill was created
• Reporting date—the date that the creditor sends the latest account information to the credit bureaus

Auto loan payments are generally considered late at midnight after the payment due date. Many auto lenders allow for a 10-day “grace period” before a payment is considered late, after which late fees are applied and vehicle repossession becomes possible.  

When Does the Seven-Year Period Start? 

The seven-year period begins on the original delinquency date, which is sometimes called the “date of first delinquency”. The entire account might not be deleted if the account was subsequently brought current after the initial missed payment. For example, if you missed a payment on a credit card debt account in January 2014, that would be removed in January 2021 by the credit reporting company.

Assuming that the past due debt was paid and the account remained current until you had another late payment in August 2014, the missed payment in August 2014 starts a new seven-year period that ends in August 2021.  

If a credit card account has been delinquent for 180 days, a credit card company will formally close or “charge off” the account. A charge-off is typically reported by the creditor the same way late payments are—resulting in an additional credit report entry that remains for seven years.

How Does a Late Payment Affect Your Credit?

Payment history is the most important part of your credit score—it makes up 35% of your FICO Score and 41% of your VantageScore. This is why late payments impact your credit score as much as they do.

FICO assesses late payments based on how recently the delinquency occurred, the severity of the late payments, and the frequency of occurrence. Having even one late payment on your credit history can leave a visible mark. Consumers who often have the most significant repercussions from late payments are those with higher credit scores who have not recently been delinquent on payments.

For example, stats show that an average U.S. consumer has a credit score of 716—with a 700+ credit score, you might lose 60–80 points from a late payment on a credit card, installment loan, student loan, or another credit account. In some cases, one late payment may cause your credit score to drop 90–110 points. Consumers with 780+ credit scores might experience a 110-point drop from a single late payment, which can take a while to regain. 

Some sources claim the number could be anywhere between 50 and 120 points, so it’s safe to say that you don’t want to miss a payment regardless of your current credit score.

What Determines the Severity of Delinquency?

The severity of delinquency is based on how late the payments actually are. Per FICO, the common stages of delinquency that may appear on your credit report include:

• 30 days
• 60 days
• 90 days
• 120 days
• 150 days
• Charge-off (written off as “bad debt”)

Being 90 days late is worse than being 30 days late, but recovering from a late payment is possible if you pay before the charge-off. If that happens, or if the creditor sends your debt to the collection agency, then it becomes a much more significant issue that will have a more serious impact on your score.

The amount (balance) of the past due payment may also impact the severity of the drop, meaning that larger mortgage payments are likely to have more adverse results.

The type of credit account alone should not make a difference. For example, if both payments were $300, the effect on your credit score should be the same regardless of whether you missed a credit card payment or mortgage payment.

How To Minimize the Damage From a Late Payment

Although some harm is unavoidable, there are ways to reduce the consequences of late payments. If you are late on a payment—or if you think you may be soon—here are three things you can try:

1. Pay the minimum as soon as possible
2. Contact the lender
3. Build your credit

Pay the Minimum as Soon as Possible

The first step in curtailing the harm from a late payment involves paying the minimum as soon as possible. For example, if you know you will be more than 30 days late, it’s best to make the payment before reaching the 60-day mark.

After 60 days, if you still haven’t paid the minimum, your interest might increase. This implies being charged even more, which will increase your balance and cause further harm. If you continue missing payments, your creditor may sell your debt to a collection agency.

Contact the Lender

If you encountered an unexpected calamity that prevented you from making a car payment, speak with the lender regarding a possible short-term deferral of payments or another payment arrangement.

The same proactive communication applies to a late credit card payment. Even some of the best credit card issuers, such as Discover and Citibank, might waive late fees or extend other courtesies for customers that have otherwise kept their account in good standing.

Build Your Credit

One of the best ways of countering the negative effects of a late payment, or another adverse credit entry, involves using credit repair or credit-building strategies. Among the best options is obtaining a credit builder loan from CreditStrong.

CreditStrong is a brand of credit-building products and services offered by Austin Capital Bank, a Texas-based FDIC-insured institution. A credit builder loan is a non-traditional variation of an installment loan where you initially borrow a sum of money that will be repaid by making fixed monthly payments.

A CreditStrong credit builder loan differs from a ‘traditional’ personal loan, since the borrowed loan funds are immediately deposited into a secured savings account where it remains for the loan’s duration. The borrower then makes monthly payments to repay the loan, which are promptly reported to the major credit bureaus. When the loan is paid off, the loan proceeds are released to the borrower.

CreditStrong’s program requires no security deposit, generates no hard credit “check” inquiry on your credit report, and is not subject to any prepayment penalties. Take a look at the available account options and give one a try today!

Aside from likely boosting your credit score, a credit builder loan also rewards you by releasing the loan funds to you after all the payments have been made (in addition to any accrued interest on the deposit account).

How To Avoid Late Payments

Prevention is always better than cure—it’s better to avoid being late on your payments than to deal with damage control later on. If you have never been late—but you’re afraid of forgetting to pay your obligation on time, the best three tips we can offer are:

1. Set up automatic payments
2. Create a reminder
3. Change the due dates

Set Up Automatic Payments

Consider enrolling your credit accounts in an automatic payment, or “autopay,” option. Most banks and other financial institutions allow automatic electronic payments from your checking account.

An automatic payment option is very helpful for car loans and student loans, which have fixed monthly payments. Many credit cards also have this option—you can usually find it in the app settings, and it allows you to automatically make the minimum payment due, total balance, or any other amount you choose.

The U.S. Department of Education at StudentAid.gov offers incentives for those who enroll in an automatic debit program. For example, borrowers paying through Direct Loans are eligible for a 0.25% interest rate deduction for signing up.

Create a Reminder

If you don’t want to pay automatically, but you simply want to not forget, you can also opt for receiving electronic reminders from your creditors as the due dates approach. They come in the form of text messages or emails accessible via your phone or computer. There are also free apps you can find online, if this is something you want to manage on your own.

Change the Due Dates

Another possibility involves changing the payment due dates on your accounts. In many cases, it is possible to synchronize your payment due dates so that you can pay all your bills at the same time rather than tracking multiple dates throughout the month.

Here, the overall key involves committing to improving your organization when managing your financial affairs. Regardless of whether you prefer a more traditional calendar, written personal organizer, or one of the many options that today’s technology offers, having some sort of notification system can only benefit you in the long run.

Why It’s Important Not To Miss Your Payments

Your payment history is the largest single factor that influences your credit score because lenders recognize that past behavior is a good predictor of future behavior.

While a single, isolated late payment is unlikely to result in long-term adverse ramifications, having multiple negative credit entries can. For that reason, you should adopt good practices, such as:

• Proactively building your credit history
• Checking your credit report annually
• Staying organized

Doing so is guaranteed to benefit your credit score and your financial health in general. 

The post How Long Do Late Payments Stay on Your Credit Report?—Everything You Need To Know appeared first on Credit Strong.

While the presence of hard inquiries on your credit report can significantly impact your overall creditworthiness, applying for credit or loan-related services will inevitably lead to a hard inquiry being recorded. But how long do hard inquiries stay on your credit report?

To help you preserve an excellent credit score and maintain your financial health, we bring you everything you need to know about hard inquiries and their longevity on your credit report, as well as how to lower their impact.

The Difference Between a Soft and Hard Inquiry

The Consumer Financial Protection Bureau’s Fair Credit Reporting Act allows for credit report inquiries to investigate and evaluate a consumer’s creditworthiness in an impartial way that protects privacy rights. In this sense, we can differentiate between:

1. Hard inquiry
2. Soft inquiry

Hard Inquiry

A hard credit report inquiry occurs when a prospective lender reviews a consumer’s credit report specifically for completing decisions related to issuing credit. The activities that most commonly trigger a hard credit inquiry include:

• Applying for new credit card debt
• Trying to obtain a mortgage
• Signing up for personal or student loans

A hard credit inquiry generally results in a slight, temporary drop in your credit score regardless of whether the loan or financing was approved or not. Recent hard inquiries suggest to a prospective lender that a consumer might have unexpectedly encountered financial problems.

Soft Inquiry

A soft credit check or inquiry is performed by either a consumer or a company for reasons not directly related to lending decisions. Soft credit checks only appear on consumer disclosures, which are personally requested credit inquiries.

These checks have no impact on your credit score, and the most common examples of soft inquiries include:

• Checking your personal credit report
• Checking performed as part of pre-employment background screening for potential new hires
• Inquiries performed by credit card companies for the purposes of marketing their pre-approval offers
• Checks performed by those a consumer has an existing relationship with, such as credit card companies making decisions regarding adjustments to credit limits, interest rates, etc.
• Inquiries made by car insurance companies and other property insurers on applicants when calculating their rates and premiums

Some consumers worry that checking their credit has the same adverse effect on their credit score as a hard inquiry—in fact, credit card statistics reveal that 54% of adults never check their credit score, and this is likely one of the reasons why. However, this is false, and checking your report annually to detect any errors in the account information and payment history is encouraged.

What’s the Lifespan of a Hard Inquiry on a Credit Report?

The three major credit bureaus—Equifax, Experian, and TransUnion—must record hard credit inquiries or “hard pulls” on consumer credit files for two years. This is done to help lenders assess your current creditworthiness more easily.

Although the credit reporting agency is obligated to document hard credit account inquiries for 24 months on your credit bureau report, both the Fair Isaac Corporation (FICO) and VantageScore credit score models only factor in hard inquiries from the previous 12 months.

Per FICO, lenders and creditors view hard inquiries as a sign of risk—statistically, consumers with six or more inquiries on their credit bureau reports are several times more likely to file for bankruptcy. However, they’re viewed as less harmful than missed payments, late payments, and some other factors featured on your credit report.

How Much Can a Hard Inquiry Impact Your Credit Score?

While the presence of hard inquiries on your credit report is only temporary, it does affect your credit score. However, the impact of hard inquiries in this sense is minor compared to other factors surrounding your credit history, and typically easier to recover from. Here’s an approximate breakdown of how much hard inquiries can impact your credit score, according to FICO and VantageScore respectively:

Keep in mind that FICO and VantageScore’s models of calculation continue to evolve, and they maintain specialized sub-versions used by different types of lenders, meaning that the scores often vary slightly.

FICO characterizes hard inquiries as having a “small” impact on FICO scores, while acknowledging that consumers with a shorter credit history and fewer accounts are most susceptible to a drop. Meanwhile, VantageScore describes hard inquiries as one of the “least” influential factors affecting your credit score, stating that changes in your credit score are more dependent on your overall credit profile.

Can You Dispute Unauthorized Hard Inquiries? 

Checking your credit report is a good practice that often reveals errors or mistakes, some of which may be hindering your credit score. If you’re worried doing so may negatively reflect on your credit, keep in mind that consumers are eligible to receive a free copy of their credit report from the major credit bureaus each year. 

One of the anomalies you may notice when looking into your credit report can be a hard inquiry that you don’t recognize. Before conducting a hard credit inquiry, all parties must have permission according to the conditions outlined in the Fair Credit Reporting Act. If a party accessed your credit report without authorization, the act might be considered fraudulent and allow for the removal of the inquiry.

How To Dispute an Unauthorized Hard Inquiry

In some cases, consumers will have uncertainty regarding the source of the inquiry, which doesn’t necessarily mean that it was fraudulent. For example, some of the retail store brand credit card programs are operated by a third-party bank or financial institution, making the inquiry appear unfamiliar to you.

However, if you believe the hard inquiry on your report is fraudulent, there are measures you can take to rectify the situation. TransUnion even created a checklist of best practices for consumers who suspect that an unauthorized credit inquiry has occurred. Here are the steps:

1. Use the contact information noted on the report to check whether the inquiry is related to an existing account or application that you initiated
2. If no evidence of an existing account or formal application exists, ask the institution to notify the three reporting agencies in writing to request the removal
3. If it appears that the inquiry involves attempted identity theft or other fraud, promptly notify the Federal Trade Commission (FTC)
4. Consider making a fraud alert, which requires no fee and has no adverse impact on your credit score
5. You can also implement a “credit freeze” program or monitoring program moving forward to avoid similar cases in the future

As consumers establish and build credit, hard credit inquiries are an inevitable reality, as lenders must be diligent. However, taking the time to review your credit report and dispute any unauthorized inquiries can save you a lot of trouble with your credit score down the line.

How To Lower the Impact of Hard Inquiries

Although any hard inquiries on your credit report will inevitably reflect on your credit score, you can minimize their impact by taking the following steps:

1. Avoid unnecessary credit applications
2. Mind the hard inquiry timeframe
3. Take advantage of pre-approval offers
4. Consider a credit builder loan

Avoid Unnecessary Credit Applications

Since a hard inquiry will cause a slight decline in your credit score, it’s a good rule of thumb to avoid applying for credit accounts that you don’t need. It’s also important to recognize that this adverse effect could be compounded when multiple hard inquiries appear on your credit report in a short period of time, which is all the more reason to avoid unnecessary inquiries.

Mind the Hard Inquiry Timeframe

FICO and VantageScore understand that the lending market is a competitive environment, and consumers now are usually encouraged to “shop around” among potential lenders in search of more favorable interest rates or lower fees. For this reason, credit scoring models will usually merge or consolidate multiple related credit inquiries into a single inquiry, with the exception of multiple credit lines.

According to VantageScore, all related inquiries occurring within 14 days are combined into one, and only one entry appears on your credit report. Meanwhile, FICO’s previous models also used a 14-day timeframe, while its newer models have been extended to a 45-day period. You should keep this in mind while shopping and strive to conduct all your comparisons within 14 days, including those for:

• Car loans
• Mortgages
• Student loans

Take Advantage of Pre-Approval Offers

One option for minimizing the impact of hard inquiries is to consider lenders that offer pre-approval offers, which involve the lender already extending an offer before you apply for a loan. For example, Capital One has developed a pre-approval tool for many credit cards that generates only a soft credit inquiry.

However, while pre-approvals rely on soft inquiries, a possible drawback of this approach is that the lender may still perform a formal hard inquiry before finalizing the application process.

Consider a Credit Builder Loan

The best way to minimize the impact of a hard inquiry is taking action to proactively improve your credit score before pursuing financing options. With a credit builder loan like the one CreditStrong offers, you can boost your credit score more easily and minimize the impact of any hard inquiries, late payments, or other factors.

A credit builder loan is a form of installment loan that places the borrower’s loan funds in a secured savings account for the term of the loan. After all of the loan payments have been paid, the funds of the secured account are made available. Whether the goal of your CreditStrong account is to build your credit score fast, establish a payment history, or build big credit, you can expect to achieve it with the help of our customizable credit builder loans.

To secure an excellent credit score, take a look at our account options and try one out today!

The post How Long Do Hard Inquiries Stay on Your Credit Report—The Timeline Explained appeared first on Credit Strong.

Public records usually appear on your credit report as the result of a financial disaster. Evictions, foreclosures, bankruptcies, and judgments are terrible news for your credit.

Each one of these affects your credit reports and scores differently. We’ll explain each public record in detail below.

What Do Public Records Mean on a Credit Report?

Public records include filings in local, state, or federal courts or other community resources that have traditionally appeared on consumer credit reports. 

Equifax, Experian, and TransUnion are the major credit bureaus or credit reporting agencies that collect and report this information.

Public records, such as bankruptcy filings or outstanding tax obligations, were entries that could hinder a consumer’s credit history. Other key credit report entries may include data related to existing credit accounts and delinquent accounts being pursued by collection agencies.

A record that is legally considered public is any data or information that governmental entities must maintain and make reasonably accessible.

In the context of consumer credit, many public records are created after a creditor brings a legal action against an individual and the court enters a formal ruling in favor of the creditor.

In 2017, the National Consumer Assistance Plan led to substantial changes in the laws regarding the types of public records that could be on a consumer’s credit report. This resulted in bankruptcy being the only type of reportable derogatory public record.

In the same year as the purge of most public record information from credit reports, changes to the provisions of the Fair Credit Reporting Act resulted in certain negative information related to delinquent medical debt also being excluded.

What Types of Public Records Become a Part of Your Credit Record?

According to Experian, bankruptcy is the only remaining type of public record entry that a major credit reporting agency will include in a consumer’s credit file. Up until the 2017 changes, a consumer reporting agency often included entries such as tax liens and even, parking tickets.

Depending on the category (chapter) of the bankruptcy filing, these records or entries remain on consumer credit reports for 7 to 10 years. Other personal information that is typically visible includes any aliases or current or past addresses, phone numbers, and employers.

Many types of public records are still easily obtainable elsewhere today, particularly with local, state, or federal agencies facilitating internet accessibility. However, the process of accessing public records might be cumbersome and subject to fees.

At the federal level, the Freedom of Information Act (FOIA) guides the laws regarding public information for the protection of personal privacy, national security, etc. Meanwhile, most states have created their own versions, such as Colorado’s Open Records Act (CORA).

Common types of public records include information regarding immigration and nationalization, transactions involving real estate, professional licensing, and more.

Certain types of financial and personal information will never be included on a credit reporting agency including information regarding physical or mental health, marital status, level of education, or records related to criminal convictions.

How Do Public Records Affect Your Credit Score?

According to Credit Karma, public records are one of six sections on your credit reporting company file along with personal data, employer information, credit accounts, credit inquiries, and consumer statements such as requests for removing inaccurate information.

Any adverse public records are part of the overall credit file that may factor into whether or not consumers have a good credit score.

Eviction

If a tenant fails to pay their rent or otherwise breaches the terms of a rental agreement, landlords may pursue eviction, which is a civil action filed in a local or state court seeking to legally oust the occupant from the property.

According to Equifax, consumers will not find entries specifically citing an eviction within their history compiled by the credit reporting agencies following the 2017 changes currently enforced by the Consumer Financial Protection Bureau and Federal Trade Commission.

However, if the tenant’s unpaid debt is transferred to a collection agency, it may appear on credit reports as an adverse collection account within the payment history when reported by credit reporting agencies — which can impact your credit score.

Keep in mind that many landlords will conduct a background inquiry using specialized tenant screening systems that will likely reveal evidence of a prior eviction and other court records.

Collection Accounts

If you have a credit account that is delinquent the file may be sold to a collection agency that buys debts and pursues these balances. These collection accounts might appear on one or more of your TransUnion, Experian, or Equifax credit reports and hinder your credit score.

If a consumer pays the collection account, the third-party agency should update the status of the credit bureau entry to reflect that the debtor has satisfied the obligation; however, the entry will usually remain on the report for seven years and likely will continue hindering your credit score.

Tax Liens and Judgments

In this context, a tax lien is a legal claim made by the government against someone for failing to satisfy a tax debt.  Liens may be placed on real estate, businesses, vehicles, and other assets and many tax liens cannot be discharged through bankruptcy.

The 2017 consumer protection laws also excluded entries indicating a tax lien from appearing on credit reports, meaning they will not impact your credit score.

A civil judgment is a court order (decision) to finalize a lawsuit filed against a borrower that allows the creditor to proceed with wage garnishment or other enhanced efforts to collect a debt.  Judgments are also one type of public record that are excluded from credit reports.

Bankruptcy

Debtors who are unable to satisfy their obligations may seek relief by filing a Chapter 7 or Chapter 13 bankruptcy in a federal court. A Chapter 7 bankruptcy is generally applicable to consumers who are totally insolvent and may be described as liquidation of all assets.

A Chapter 13 bankruptcy is appropriate for those who generally have some current source of income, but are overwhelmed with debt. Here, the debtor partially repays their debts in installments over a period of three to five years.

Chapter 7 bankruptcies generally remain on credit reports for 10 years and Chapter 13 bankruptcies are visible for seven years. Regardless, bankruptcy has a devastating effect on a consumer’s credit score.

Foreclosure

A foreclosure occurs when a borrower fails to make their home mortgage payments and the lender enters the process of taking possession of the property to compensate for their losses.

Evidence of foreclosure generally remains on a consumer’s credit report for seven years and has a very adverse impact on credit scores.

How Long Do Public Records Stay on Your Credit Report?

The following chart outlines the amount of time that public records and other entries remain on credit reports.

Durations of Accounts and Entries on Credit Reports

Source: TransUnion

Keep in mind that late payments are typically reported to the credit bureau after 30 days have elapsed, which begins the seven-year period. Also, the seven-year period for accounts sent to a collection agency begins on the date the original delinquency was reported.

Often, consumers that endure very adverse entries, such as a Chapter 7 bankruptcy, can rebuild their credit to an average score or better in only a couple of years by beginning efforts to restore their credit history, which can be obtaining a secured credit card.

Secured cards typically require a security deposit that is equivalent to the credit limit. Using the secured card responsibly may allow you to later qualify for a traditional unsecured card from that lender.

Another option is obtaining a credit builder loan from CreditStrong, a division of a Texas-based community bank.

CreditStrong’s installment loan program differs from a standard loan where the borrower receives the loan funds initially. Here, the funds are deposited and secured in an FDIC-insured savings account.

Next, the borrower makes affordable, fixed monthly payments over the term of the loan. Throughout the loan term, CreditStrong regularly reports the payment history to the three major credit bureaus, which should improve your credit score.

After making all of the loan payments, the funds in the savings account are then released to you.

Can a Public Record Be Removed From Credit Reports?

Consumers may obtain a free credit report each year from the credit bureaus, which may allow for identifying any errors or omissions that might be hindering their score. For example, TransUnion has an easy-to-use website process for disputing incorrect public records.

You may dispute a credit report entry online, via U.S. Mail, or over the phone. Be sure to describe the concerns in detail and include any relevant documentation.

TransUnion will complete the investigation process in roughly 30 days and make corrections accordingly. Keep in mind that only confirmed and validated credit report entries will be removed.  

Recent federal changes limiting the types of public records that may appear on credit reports can benefit consumers.

Responsible consumers should strive to maintain good credit by always making timely payments, limiting unnecessary credit card spending, and checking their credit reports annually.

Those who have already incurred adverse credit-related concerns are encouraged to take steps toward improving their credit by using tools such as credit builder loans and others with proven results. 

The post The Potential Impact of Adverse Public Records on Credit Reports appeared first on Credit Strong.