Credit Emergency Room
Emergency Emergency! Your credit is hurting! If you’re here, then I am assuming bad credit is the giant wall blocking you from buying a home. Do not worryyy, you’ve made it to the Credit ER. This is the #1 reason we hear when we ask people what is stopping them from buying a house, you are far from alone! If you read my previous blog: Build Your Credit, Build Your Wealth then you saw that I talked about the Ins and Outs on how to have good credit in a more simple situation and it is still very important information you need to know, however you need much more help if you’re already drowning. I won’t go back over any of those tips, so make sure you read that blog as well. The good news about credit? It’s just like a wound, everything has a timeline and a healing strategy. Now, without any more blabbing, let’s talk about it.
First, to follow along, check a free credit checking site like Credit Karma to see what is hurting you, so you know what which of these strategies you need.
Credit Consolidation: Getting a loan to consolidate credit card debt is a great option when looking to fix your credit and save on interest/monthly payments. There are many credit consolidation loan options out there, your credit app of your choosing may even suggest some. This also helps diversify your credit, which is a score booster. The best way for this to benefit you is to use the loan to pay off all but less than 10% of your card/s and use those cards to pay your monthly bills. Do not leave the cards with zero balance and make sure to pay the majority automatically each month, do not pay the minimum to end up back in the debt cycle. It is a delicate balance, but it is worth it. Refer to Build Your Credit, Build Your Wealth to understand more.
Credit Transfer Cards: Not all credit cards are eligible for this, but if you are stuck with a card with a high interest rate and each payment you make is seemingly going nowhere, this is another consideration. This is an option to transfer your credit card debt to a card with a low or 0% APR making paying it off way more doable. If that option interests you, click here to learn more.
Hardship Programs: This is a very helpful program that some card issuers, like Synchrony, offer. If you are experiencing a hard time and got caught up in more credit card debt than you can handle, talk to your credit card company! They may be able to offer you a lower interest rate to assist you in paying off your card sooner and easier. This is not widely talked about, but know that things can always be negotiated. Schedule an appointment at your credit card company or call them to talk about your options. A closed mouth doesn’t get fed. Work for it!
Check your credit for any mistakes. Mistakes are possible and they will work with you. If your any of your personal information is wrong, it can be removed. I personally have done this through Credit Karma and they made it very easy. Always verify what is being reported, understand that reports are different for each credit bureau (Ex: Transunion, Equifax, and Experian) If you want to learn more about the differences click here
Late Payments: Late payments, 30+ days late, have the largest negative impact on your credit and stay for up to seven years. The first thing you should do is try to call and ask for a one time forgiveness, if that doesn’t work, you can write a goodwill letter. There is no guarentee it will work, especially if you do not have a great payment history, but it is always worth a shot. You know that Wayne Gretzky quote, “you miss 100% of the shots you don’t take.” You can write this letter in a letter via mail, phone call, or email. Make sure you are: sincere, explain your situation, show gratitude and appreciation for the company/ card issuer, ensure it will not happen again and tell them why, mention that it is hindering your ability to buy a home, and ask for a “goodwill adjustment” to have it removed. If it was due to an emergency situation, show proof. Goodwill Letter Samples HereIf more than a month goes by and you have not heard from them and you do not see a change on your credit report, call again, mail again, be persistent.
Source: Rod Griffin, director of consumer education and engagement at credit bureau Experian and Credit Karma
Collections: Negative impact on your credit for up to seven years.
First, I want to talk about medical collections. This is not treated as harshly as other debts, when you are buying a home this will likely not affect your loan eligibility. Once sent to collections, medical debt will not report on your credit for 12 months. Medical collections under $500 do not affect your credit.
Kind of like a goodwill letter, you can attempt a Pay to Delete. This is a way to pay less than you owe and get the collection removed from your credit. This is much less common these days as it teeters a legal line for debt collectors, but it could be worth a try for you. I suggest checking out this link: bankrate.com to decide if that is a step you would like to take.
You can also send a goodwill letter for a collection, though it is less common and not a guarantee, it is worth the attempt.
It is important to keep in mind that paying off a debt does not remove it from collections (unless you succeed in a Pay to Delete.) It may give you a better shot with loan approvals and save you from possible legal action, but from a credit standpoint, the damage has been done. But remember, the weight of the negative impact decreases with time. The longer ago a negative mark was made, the less it will affect you.
Foreclosures/ Repossessions: These are typically detrimental to your credit, dropping your score by a possible 100 points or more. However, if you have experienced one, there is hope. Like a debt sent to collections, this stays on your credit report for up to seven years and the effect lessens over time. It could even be possible to qualify for a mortgage before it is fully off of your report, talk to a Mortgage Professional to understand more about your personal situation.
Open New Credit Cards: Now, this one I must say you should approach with caution. This is a commonly suggested solution from people paid to help you with your credit, but I care about you and do not profit off of you. I want to make sure that you are fully informed about this. If you are someone that can’t control themselves with a credit card, this may not be the best move. Let me tell you the pros and cons.
To not over complicate it:
Pros: Raise your credit limit which is great, that lowers your overall utilization. It’s also a pro, if you don’t have many cards, to add another. This shows that you are responsible with more lines of credit.
Cons: Causes a temporary and often small dip in your credit. Lowers your average credit card age (the longer you have had your accounts open the better.) And opens you up to more potential debt if not handled responsibly.
This article is not sponsored whatsoever and did not involve any AI. I use my own experience, my own research, and many credited sources to get my information. Sources include: NerdWallet, Equifax, Transunion, CreditKarma, and myFICO. This article is intended for educational purposes and provides general credit and financial strategies. It is not tailored to any individual situation. Credit outcomes and mortgage eligibility vary based on personal financial profiles, lender requirements, and market conditions. For guidance specific to your situation, consider consulting with a qualified financial or mortgage professional.
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