There are a lot of misconstrued notions about what affects your credit rating negatively. Pots calling kettles black, spoons jumping over moons, nobody seems to have a solid answer on the who, what, where of credit scores. Many of these myths derive from misleading ads, exchanged words at the water cooler, and profit driven promises from companies selling services.
In a credit dominant country where your job and home are now tied into how you spend and manage imaginary money, it’s extremely important to know and understand the terms of credit scoring and what can help and hurt you long-term.
Officials from both TransUnion and FICO have spoken on the impact, or lack thereof, of fraud alerts negatively affecting ones credit rating. Simply put, it does not. Instead, it’s more like a yellow caution flag suggesting the lender ask for more definitive information or identification to ensure the application is actually coming from you. The reality of the matter that has always been constant with the credit bureaus is that a fraud alert will not hurt or negatively impact your credit, but it could very well slow down an application process. The double checking by lenders could also cause a boy who cried wolf syndrome amongst lenders who have to over analyze a credit report with a fraud flag. So while a fraud alert does not drop your score it could make a lender leery about approving you for a loan. If this is the case, find another lender.
Shopping rates and lenders also needs clarification. Most consumers have been taught to believe that if they are shopping for a new car or home that the multiple inquiries will result in negative marks on their credit. Not the case, but not entirely false either. A window of opportunity is opened for consumers who are shopping for a new home or automobile. Multiple applications can be made within a certain time frame, usually between 14-30 days. If multiple inquiries are made within the given window your report should only show one inquiry and said inquiry should not decrease your rating. Shopping car, home, and life insurance works the same.
Checking your credit does not hurt your score. Anyone can go to annual credit report .com and receive a free credit report from all three credit bureaus without impacting their score once a year. Checking your credit should reflect, if anything, as a soft inquiry. In instances of credit denial, a credit report can also be pulled and reviewed by the consumer without hurting their rating. It’s encouraged to check your credit once a year to ensure you are not a victim of identity theft.
More often in the media, debt management programs have gotten a bad rep as a get out debt solution that destroys credit. Another half truth. In actuality, it really depends on the type of debt management plan you enroll in.
A debt settlement plan that pays back a portion of the debt you owe, or reduces your debt by 50% etc, can negatively impact your score for seven years. But it’s not because of the settlement program itself but the status the accounts must be in to be settled upon. Accounts must go into a charged off status before they can be settled on. Charged off debt means that the creditor has not received payment in 6 or more months and has written the debt off as a bad debt and sold it to a collection agency.
Debt consolidation, the lowering of interest rates, can improve your credit over time with timely payments and faster balances reductions via lower fixed interest rates. With lower fixed rates the balances are paid down faster, decreasing the outstanding debt much faster than traditional monthly payments. Payments are made each month as received and sent out to maintain a positive payment history. Consecutive payment history accounts for 35% of your credit score. Outstanding balances account for 30%.
Debt consolidation loans can also hurt your credit. Also known as the robbing Peter to pay Paul plan, this method is simply a glorified balance transfer transaction. Balance transfers, consolidation loans, however you want to paint it, can result in a drastic drop to the score as you’ve just created one huge debt by transferring all your balances to one.
A certified credit counselor working with a nonprofit agency can provide a free credit report review for you and go over what’s affecting your credit and how in a free financial consultation. To speak to a certified credit counselor visit our website and LIVE CHAT with a counselor or complete our contact request form. Learn how nonprofit counseling services can improve credit and get you out of debt by calling 800.905.1563. Freedom Debt Management is a BBB Rated A+ nonprofit counseling organization. You can be debt free, Freedom Debt can help.