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The Consumer Law Group, P.C.

Why Your Credit Report Could Be Making You Miserable

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Whether you are trying to apply for a credit card, mortgage, or even applying for a job, your credit may be jeopardizing your chances without you even knowing it. You should always make sure to check your credit report quarterly, if not annually. There may be some nasty stuff on your credit you weren’t even aware of. Here are 5 major negatives that may be ruining your credit:

1. Judgments

A judgment is a court document showing you owe someone a certain amount of money. Judgments may be collected by the creditor for up to 10 years if obtained in general district court, or 20 if obtained in circuit court. Even if a judgment is satisfied, they will continue to be reported on your credit report for up to 7. If you were never served or aware of being sued, you may be able to set aside the judgment and remove it completely from your credit report. A new court date may be scheduled to allow you to dispute the debt.

2. Default Accounts

A default account is when you stop paying on a debt. Your creditor may charge late fees to bring the account current, but once you decided to stop making payments, the account will be placed in default. Default accounts seriously impact your credit because it shows potential lenders that you are unable to make payments and honor your obligation. One way to deal with default accounts is to negotiate a settlement with the creditor. You may negotiate on your own but it is most beneficial when you have a representative.

After a certain period of time most banks and large companies will choose to “charge off” the account. This does not mean you no longer owe it. It simply means the creditor does not list your debt to it as an asset on its books, since it deems the debt not worth trying to collect on. The debt is then sold to a debt buyer at a deep discount, who will then continue the collection process.

3. Late Payments

Before your account goes into default, you may be making late payments and suffering late fees. Your credit report will list your account as being 30 to 180+ days late. Late payments hurt your credit because it shows lenders that you are unable to make timely payments so they may charge you higher interest rates and fees in order to obtain credit. Your best option is to consistently make timely payments, but if the debt is unmanageable, you may want to consider debt settlement.

4. High Credit Balance-to-Limit Ratio

One of the biggest factors in calculating your credit score is your credit balance-to-limit ratio. Also known as your “utilization rate”, this ratio is calculated by dividing the total of the balances on your credit cards by the total of the credit limits on your credit cards. A high ratio shows lenders you may be experiencing financial hardship or that you are living beyond your means.

5. Inaccuracies

The main reason you should be checking your credit report periodically is so that you can keep an eye on any suspicious and inaccurate reporting. You may have been a victim of identity theft and your credit report will list accounts you never opened or used. Or one of your defaulted accounts was sold to a third-party debt-collector and now there are multiple reportings of the same debt or maybe at different amounts. With proper vigilance, you may be able to spot an inaccuracy sooner rather than later and take the correct steps to remove it and save your credit.

BONUS #6: Damage to Personal Relationships With a Live-In Partner or Spouse

The Federal Reserve Bank did a study where economists analyzed credit scores of millions of consumers over a 15 year period ending in 2014. The goal was to examine whether credit scores play a role in the formation of committed relationships, such as marriages and long-term cohabitations, as well as the couples” ability to maintain the relationship. Some of the conclusions of the study are: 1) that for every additional 93 points or so in a couples” average credit score at the beginning of the relationship, their odds of separating during the second year of their courtship dropped by 30%. 2) If the gap between couples scores was greater than 66 points, the couple was 24% more likely to split up within the second, third, or fourth year. Poorly matched couples faced challenges managing household finances, which spilled over into the relationship, sometimes destroying it, often due to a lack of trustworthiness in the other partner.

For a free, no-gimmick credit report from each of the big 3 credit bureaus, visit www.annualcreditreport.com.

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