Repairing peoples credit is a big business and will continue to grow to unimaginable levels in the years, even months, to come. You may have seen the ads or heard the pitches for many credit repair companies. All your bad debts and derogatory information disappears and your scores shoots sky-high….for one upfront cost! Well… not exactly.
Here’s how it works:
Most trade lines on your credit report will report virtually the same way when you are late. A penalty and drop in score when you hit 30 days late, 60 days late, and 90 days late. After those debts pass the 90 day milestone, they will typically be passed on to a third party debt collector or collection agency (they buy them for pennies on the dollar). Like we covered in the short sale or pre foreclosure post, 90 days past due is about as bad as it gets… after that your debts “move to another realm”. This is where the majority of credit repair specialists “live”. They’ll come in and “dispute” one or more line items on your credit report, when, done properly allows your score to take a quick jump, as well as opens up a window of opportunity for you to get a mortgage, or do what you need to do. Inevitably, unless you have a legitimate dispute with hardcore evidence to back that up, the line items will pop back up again. Believe it or not, credit repair companies can and usually do cause ore harm than good. When the last date “reported” or date of “last activity” by a creditor passes 5 years (judgements etc. 7-10) they must drop off your report. When the repair companies go around messing with items improperly, it causes the line items to essentially “refresh” themselves, resetting that timeline. Don’t fall into this trap.
So what about debt consolidation? Big NO NO. What this does is roll all your balances into one large account. So you have now updated the last activity on many accounts that may have potentially been harmful, or due to “drop off”. Then you have proceeded to roll them into on big “bad” line item (you need to keep your debt to income ratio, or dti, below 15%. i.e. A $50,000 credit card should carry a balance of no more than $7,500. for any one monthly cycle. This is for optimum scoring). When you take all your debts and roll them into one trade line, that trade line is essentially “maxed out” which is devastating for you score and borrowing ability. Let’s all talk about this some more, as there are MANY interesting ins and outs of building and repairing credit PROPERLY. I’ll release more information on this beyond the basics in a group discussion.
Had this happen to me. I did the “debt consolidation” program that was supposed to help me pay down my debts. Well, effectively the interest rate was lower, but had I applied the same dollar amount paid each month to my credit card companies, the interest paid would have been the same. Also had “fees” to pay for the debt cons. service. It screwed my credit for four years, as my balance due always matched my balance owed. 100% dti…just like you said…wtf. Its done and gone now, won’t do that again.