Last week we talked about building credit for the first time. This week we are going to talk about repairing your credit if you have older negative items pulling your credit score down.
Payment history is the biggest part of your credit rating, and when payments are missed and things are reported as past due, that information stays on your credit report for a long time. Seven years in most cases, sometimes longer.
There’s a sort of sequence when it comes to bad debt. First the account goes past due, and reports as such directly from the creditor. If no payments are made, then it probably will go to a collection agency, which is a company that buys debt, and then gets to keep part of what’s paid as payment for collecting the debt. Last is when an unpaid debt goes to Small Claims Court and a judgement is filed. When judgements are filed, that’s when wage garnishment, bank levies and property loss can happen. If you have a past due account, try to keep it from going to collection. If it’s already there, try to work out an arrangement so that it doesn’t go to Small Claims Court.
If it’s a missed payment or two, and now the loan is back in good shape, there isn’t much you can do except to keep making payments on time, and let the time pass.
However, if you have old unpaid items that are in collection or have judgements, it’s time to work out a plan to get it paid. Your credit report will give you the best information about what is owed and to whom, if you don’t already have that information. You can get a free copy of your credit report at www.annualcreditreport.com. If you think you may have judgements, contact the county Clerk of Courts and they can tell you what’s out there.
Of course, the best thing to improve your credit is to pay the debt, even if that means making payments over time.
Sometimes if a debt is old and hasn’t had payment for a while, a creditor will accept a settlement. That is when the creditor agrees to accept less than the total amount due as payment in full. Once that’s done, it will still be on your credit report until the 7 years is up, but it goes to a better status, which can improve your credit rating. The down side is creditors usually want a lump sum or a larger payment to settle the debt.
When there is a judgement, you may rely on the cooperation of the collection agency to avoid garnishment, because once the judgement is in place, they have the right to take action. When they do, the debtor is typically responsible for the costs incurred. However, you may be able to get them to agree to a voluntary wage assignment. This is when someone agrees to a payroll deduction to pay a debt, which would at least eliminate the garnishment fees.
It can be a lot to manage and to come up with a plan. If you need help getting on top of the situation, the counselors at the Center for Financial Resources can help you make your plan to build or rebuild your credit rating. Contact us at 1-888-258-2227 or visit our website at http://www.lsssd.org
Written by Sylvia Selgestad, Financial Counselor and Educator
Photo credit: quicken.com
LSS Center for Financial Resources
Consumer Credit Counseling Service | Housing Resources | Sharpen Your Financial Focus | Financial Fitness Education
705 East 41st Street, Suite 100 | Sioux Falls SD 57105-6047
605-330-2700 or 888-258-2227
Strengthening Individuals, Families & Communities