Individuals are forever inclined to have control over their finances and consider credit to be a vital part of their financial planning. Credit or leverage means a formal contract between a buyer and seller in which the buyer takes something from the seller and promises to return it within a stipulated time. Credit also means creditworthiness, which means being in a financial position that makes one reliable enough to receive financial credit. Credit helps people in achieving their desired goals and ambitions. However, whether they can obtain credit or not depends on their creditworthiness. Thus, applying for a credit card, home loan, or education loan, the person’s creditworthiness is the key to everything.
Creditworthiness should not be confused with the capacity to pay. While a person’s income and assets decide his paying capacity, creditworthiness is associated with willingness to pay. There might be many people with high incomes, but they don’t have good track records of managing credit. They could have made late payments or abstained from making full payments. These gestures negatively impact their creditworthiness.
The metric to judge a person’s creditworthiness is credit scores. It is a financial tool used by lenders or banks to evaluate the risk associated with providing credit to an individual, and hence, it shapes their decision regarding extending credit. Credit scores are assigned based on information collected by credit reporting agencies and credit bureaus. The information gathered includes payment history, the amount owed, length of credit history, and types of credit. The credit scores are in the range from 300 to 850 and are derived using the FICO (Fair Isaac Corporation) credit scoring. Credit reports are created based on this, which gives a detailed breakdown of any person’s credit history. There are three major credit reporting agencies in the United States which assign credit scores. These are Equifax, Experian, and TransUnion.
A key aspect to discuss in this regard is the Fair Credit Reporting Act (FCRA). It not only regulates the consumer credit information but also gives guidelines regarding who is authorized to access the credit reports. This law has existed since 1970 and validates the credit information that each of the credit reporting agencies provides. It has specific guidelines on the type of information collected (bill payment history, current debts, past loans, employment information), time of collection of information by credit bureaus, and timespan till which they can keep the information with them. FCRA also regulates how customers can access their data. It gives individuals the following rights regarding their credit information:
· Access to one’s credit report – A credit reporting agency is obliged to provide access to an individual’s credit report on request, twice a year. The person needs to present proper identification for gaining access
· Protected Access – Access to credit reports is granted only to particular institutions. These institutions include banks, insurance companies, and landlords
· Accurate reporting – The credit reporting agency is obliged to examine, verify or remove the information on discovering any fraudulent information in the credit report
· Privacy of medical information – Credit bureaus have to keep an individual’s medical information private
· Data privacy – Credit bureaus can’t publish personal account numbers or other such confidential information
· Receive notifications regarding negative credit information
· Right to seek damages – An individual is authorized to sue the credit reporting agency which has violated FCRA and seek damages
As discussed above, FICO scores help to ascertain the creditworthiness of individuals. Generally, a credit score of more than 740 is a good one, and the person with such a credit score is creditworthy. Thus, he can easily obtain optimum interest rates and favorable terms of credit. For credit scores between 580 and 740, individuals would be able to secure loans or credit. However, the interest rate would not be optimum, and the interest rate would increase while the credit score declines. Finally, individuals with a credit score lower than 580 would face difficulty in getting credit at suitable interest rates.
Credit scores are affected by a variety of factors. Hence, it is likely that the credit scores might get hampered. With individuals undertaking various transactions, they end up weakening their credit rating or end up getting a bad credit score. Individuals facing financial distress might end up making late payments or missing out on credit card payment dates. All this leads to derogatory remarks on a person’s credit report, thus weakening the credit score. Given below is a list of such factors:
· Late Payments – As discussed before, making the payment for credit received after the due date leads to a derogatory mark in the credit report. This increases in severity after 30 days have passed since the due date and the payment is still pending
· An account in charge-off – Once a borrower has made late payments or missed the payments, the creditor might not feel assured that the borrower is going to pay back the money. Thus, he writes off or charges-off the account owing to tax reasons. A third-party collections agency takes charge, which tries to get the money from the borrower
· Bankruptcy – In this situation, a borrower might pay back some or none of the credit amount, and it leads to a negative mark on the credit score
· Civil Judgement – Losing a civil lawsuit will show as a derogatory mark on an individual’s credit score
· Debt Settlement – This is when the borrower can pay back only a part of the debt owed to the creditor prior an agreement with the creditor
· Foreclosure – Falling behind severely on the mortgage payments can lead to foreclosure, which causes the bank to attempt a forced sale of the borrower’s home, which then acts as collateral for the loan
· Tax Lien – Failing to pay taxes will lead to the government placing a lien (claim against the borrower’s property) to recover the debt. Naturally, this would weaken the credit score of an individual
Thus, with our elaborate discussion on the need to maintain creditworthiness and the various ways in which credit scores can be negatively affected, it is of prime importance that we address the issue of credit repair or credit restoration.
Thus, the role of a credit agent or credit repair specialist becomes very crucial. Although a borrower himself can do credit repair, this may not always have the desired impact. Credit repair requires complete knowledge of the credit reports and how to read and analyze them. One should be well versed in laws related to credit reporting agencies. Also, at times one does not realize where the problem lies or how to rectify it. The inability to allocate proper time to credit repair is probably a big reason behind individuals hiring credit repair specialists.
Based on a person’s credit score and credit report, the credit repair specialist can provide adequate suggestions to a person to improve his creditworthiness. As discussed above, there can be various reasons for negative or derogatory remarks on a person’s credit score. The credit repair specialist analyses a person’s current financial position & assets and accordingly suggests how to handle those negative marks. Some of the recommendations might involve disputing the negative marks, paying off the debt, negotiating the removal of the derogatory marks, and settling the credit reporting time limit. Handling all these negative items requires proper correspondence with credit bureaus and debt collection agencies. The credit agents have to send letters on behalf of the clients with concise information about the client’s credit situation. Protecting a client’s privacy is the topmost priority for any credit repair specialist.
Moving on to some of the other roles of a credit repair consultant, we have the following:
a) The consultants should ensure that their clients know the rights available to them to dispute information on their own. Also, they educate clients about the FCRA
b) A credit repair specialist should review the credit report from all three major credit reporting agencies mentioned above so that it is easy to track and verify any errors present in any one credit report
c) The credit repair specialists also monitor the credit profile and help in building a sound financial future. 24×7 monitoring of the credit profile notifies the individual about the current changes in the report and gives them information about how the changes affect the credit score
d) As it is equally important to maintain a good credit score, the credit repair specialists guide the individuals in building action items and carving out a trajectory to continue having a good credit score
The credit repair specialists, on behalf of their companies, draft a legal contract for their clients before starting any work. They should have a proper understanding of government agencies along with knowledge of the state’s credit repair laws.
There are various credit repair companies and credit repair specialists working throughout California. The belief is that the main focus of these companies is to provide the best credit-related services to their customers. However, there have been many cases of credit repair agencies extorting money from customers or using false promises to lure them into traps. It led to the Bureau of Consumer Financial Protection suing many credit repair companies for deceptive marketing practices.
Thus, when dozens of credit repair companies claim to provide excellent service, it becomes tricky to pick the right one. An individual should diligently crosscheck all relevant details regarding a credit repair company before hiring them.
A few attributes that should be mandatorily present in a credit restoration company are:
a) Good Rating – Better Business Bureau is an organization that helps customers in finding reputable service providers. Thus, if it reviews a particular credit repair company and provides a positive review & good rating, it becomes trustworthy and can be appointed. The credit repair companies should also have legitimate reviews from third parties. It can be in the form of testimonials, reviews, or blogs on their website. The validation from multiple sources helps to ascertain the credibility of the service provider
b) No shortcuts taken for credit repair – Credit repair is not a one-day process. It requires the proper study of credit reports, verification of information from credit reporting agencies, contacting various credit bureaus and debt collection agencies. Thus, credit repair companies promising to offer quick fixes for sorting out negative remarks on credit reports can’t be trustworthy. At the same time, if a credit repair company takes too much time without any visible results, they might not be the right ones for the job
c) No Pressure – A good credit restoration company will never pressurize its customers for anything, be it personal information, or adopting tactics to deal with derogatory remarks on credit reports. They should always put their customer’s need first and help them understand their finances and make an informed decision
d) Money-Back Guarantees – Credit restoration companies offering money-back guarantees not only respect their customer’s money, but they are also confident about their services. They will always ensure that they provide their best to meet the customer’s expectations
e) Personalized Services – When so many credit repair companies are plaguing individuals to opt for their services, the degree of personalization one company offers is what sets them apart. There are many variants of personalized services ranging from different packages for different customers, to having a dedicated account page
f) Imparting knowledge regarding finances – Having sound knowledge about credit is the biggest asset. Thus, credit repair companies should educate their clients so that they understand what is meant by good credit and can maintain a positive credit history. All their programs or services offered should be described in detail for the clients to make an informed decision. Additionally, they should also brief their clients about the FCRA so that they know how their credit information is collected and how they can access their credit.
Thus, it is evident to all, be it any city or state, having a decent and comfortable standard of living requires the efficient management of credit. This management of finances or credit has become so important that credit repair service companies have taken a central role in our lives. With their services at our disposal, all individuals are at ease about their financial position and know how to build a safe and sound financial future.