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How WILL This Affect My Credit Report?
By Rick Siebert
Executive Director
Cornerstone Credit Counselors
As the Executive Director of Cornerstone Credit Counselors, I spend many
hours each week answering questions from callers trying to determine how
best to handle the pressure from their ever increasing debt burden. Proverbs
tells us that "the borrower will become a slave to the lender."
These callers are learning first hand exactly what that means.
I began to think about the one question I am asked more than any other
-- "How will this affect my credit report?" Of course, that
question cannot be answered without considerably more information and
I'm actually not as concerned with the answer to the question, at this
point, as I am with the reason it's being asked.
Something very disturbing is happening today and I'd like you to know
about it so you can avoid falling into the same trap. Many people, in
an effort to maintain a "perfect" credit report, continue to
accept the new credit cards offers they receive in the mail. Then, using
the cash advance option, begin to borrow even more money, all in an effort
to maintain their current life style, often using the cash advances to
make payments on their other credit cards.
Unfortunately, the ever increasing debt load grows, until, finally, no
one else is willing to send them another card. All of a sudden, there
is no way to make all the minimal payments. Trying to maintain a "perfect"
credit rating, by borrowing more, has resulted in destroying the very
credit rating they were trying to maintain. A very simple concept to remember
-- you cannot borrow your way out of debt.
To start with, lets see why the credit report exists. Credit reports exist
for creditors. It is a way for a creditor to determine whether or not
they want to risk loaning money to a specific individual.
To help creditors make that determination, Credit Bureaus have come into
existence. Their job is to collect data on individuals related to their
credit history. This information is stored in large data bases and made
available to creditors to help them make more educated decisions.
What will the creditor be looking for? Well, for one, he will be able
to determine how much outstanding debt an individual currently has. This
information will be used to assure the creditor that the perspective client
can afford to repay the new debt he is about to assume. This is generally
referred to as the "debt to income ratio."
The creditor will also be able to see the client's payment history. This
will let him know if the client has a good track record of making on-time,
monthly payments.
Finally, the report will provide information about any outstanding collections,
judgements or liens the client may have against them.
Armed with this information, the creditor can make a much more informed
decision about loaning money/offering credit to the perspective client.
Now, back to the original question. Sometimes, the question is being asked
by someone with a great credit history who is really interested in knowing
how credit counseling will affect their credit report. The answer is very
little, if you have a perfect rating. Most creditors do not report to
the credit bureau when an account is being serviced by a credit counseling
office. When they do, the report will notate "financial counseling"
or some other similar notation. If you have a bad credit rating, it will
improve. As we have worked with clients, we have seen their credit ratings
go from very bad all the way to "1" ratings, which is the best.
We have not experienced any negative implications from working with a
counseling center.
However, the question is most often asked by someone with a bad credit
report. As stated above, for these individuals, the credit reports will
improve considerably. That is because the very best way to improve a credit
rating is to make on-time, consistent, monthly payments to develop a positive
payment history and reduce the overall indebtedness.
Often the callers will inquire about having things removed from their
credit ratings. They are concerned about a negative entry on their reports
and are looking for a way to have it erased. The question then is whether
the information is accurate. If you have inaccurate information on your
report, you can easily get it removed.
However, if the information is accurate, you probably won't have much
success. Virtually everything on your credit report can remain for seven
years (bankruptcy -- ten years). If you think back to the reason the credit
report exists, you'll understand why creditors are not interested in removing
items from your report. If every creditor did that, the report would become
useless.
Your best bet is to repay your creditors and then put a word of explanation
into your report, explaining how the original problem developed. Anyone
can run into problems (health, job loss, etc.) and creditors will understand,
as long as you followed through and repaid the debt.
Having said all that, I would like to offer a word of caution. There are
lots of companies springing up around the country, making promises to
"clean up" your credit report. Generally they charge you a fee
and tell you they will get items "removed" from your report.
For your own protection, I offer this advice: Before you pay anyone making
these type of promises, check them out. Call the Better Business Bureau,
ask for names of prior clients and, most of all, get the promise in writing,
with a guarantee for a full refund should the item reappear on your credit
report within one year.
One of the tactics for cleaning up reports is to challenge their validity.
When this is done, the creditor is required to provide proof that the
item on the report is accurate. Many times, the creditor does not respond
int he allotted time and the item is removed, only to resurface months
later, when the creditor has the time to research the request.
For your own safety, be sure to get a written guarantee and also get a
commitment from the Credit Repair Company to provide you with a free copy
of your credit report 6 to 12 months after "the repair" to be
sure the job has been done properly.
Another tactic is to have you apply for and obtain a new social security
number (or employer identification number) in order to establish a "new"
credit file. This is illegal and can result in your having even bigger
problems. DO NOT let anyone talk you into this illegal tactic. Instead,
report them immediately to your State Attorney General.
Your Credit Report is important and you should do your best to keep it
in good shape. But don't keep borrowing to maintain it. That is a clear
warning sign that your debt has grown beyond your ability to repay. If
you need help, call us and let us help you get it straightened out --
the right way.
Cornerstone Credit Counselors, Inc. is a non-profit, non-denominational
credit counseling and debt management ministry providing its services
absolutely free of charge to the general public. For more information,
call 925.552.0299 or email to DebtBustR@aol.com.
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