Now, I will start this article with the disclaimer…I have a fundamental issue with the whole credit score process in this society. Why are you rewarded for taking on more debt? What happens when/if your margins shrink?
However, it is the game in which we all play at some point in our lives. Therefore, if I can help you by providing some insight to this process-it could help you repair issues, be more knowledgeable, preferably lead you to resolve to not repeat, then we can get to true financial fitness by not letting the credit elephant lead us astray from financial security….So here it goes.
A credit score refers to a numerical expression of the creditworthiness of a person, for use by creditors to assess the likelihood of such a person to repay his or her debt.
A credit history that is solid and free of negative items can save you a significant amount of interest. Likewise, presence of negative items can increase the cost of acquiring financing for products such as mortgages and credit cards. If the credit score is very bad, then you might not get a loan in future.
A credit score shows your ability to secure loans or mortgages in future. It is important to maintain a good credit report free of negative items since such items will appear in your report for up to seven years. Negative items include late payments, short sales such as when a creditor writes off some loan amount, foreclosures such as when a creditor bank writes off the whole loan amount, bankruptcies such as when all creditors write off your debts and collections such as when a creditor sells off your debt or loan to another firm.
Even though the items will be present in your report for up to seven years, they will not affect your credit score uniformly over the years. For instance, a late payment now may have a greater effect on the score than a similar case six years ago. The nature of the impacting factors on a credit report determines the magnitude of the effect of a negative item on your score.
One slip indicating a late payment will not impact negatively on the report. Presence of many positive factors will reduce the damage on your score significantly. However, if the amount of negative items is too many, creditors will conclude that you cannot honor your financial obligations. This can damage your credit score and consequently your ability to get future credit.
If you are having severe issues with this, there are resources available…but buyer-beware. There are also “sharks” disguised as consultants or “repair” companies that really don’t do much. Contrary, there are also reputable companies out there that will help you and guide you…get referrals, seek guidance, don’t believe marketing ploys unless you know people who were actually helped! One of my favorite resources on this topic is Dave Ramsey’s “Sharks in Suits” discussion on his website. Many times, local churches also have resources to turn to helping you through this.