Improve Credit While Stiffing Debt Collectors? Here’s How!
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Improve Credit While Stiffing Debt Collectors? Here’s How!

EPF Last Update: March 10, 2017

The collectors can stop calling!

No matter the severity of your debt troubles, a silver lining is always there. It’s just a matter of knowing how to best play your situation. Backing yourself into a corner, without piecing together an “escape route” is inexcusable. You can bring your credit up to a high standard, but you need to play by the rules.

That can get tough…doing only what the credit card companies tell you will not guarantee a major credit score recovery. Whatever damage you have done to your FICO score, it will take years of good decision making to fix. That’s okay, it’s just a matter of having the right plan from the start!

You can fix your credit easier than you think, and I’m going to show you how!

Define the Debts That Must be Paid

You don’t have to pay all your debts. Some won’t ever have an impact on your credit rating. If you use any online payment processors, they serve as a great example. The majority use a third-party debt collections service that buys the delinquent accounts. If the original company never reports the debt, you are scot-free as the company won’t be able to report against you.

Credit collections agencies are always willing to negotiate on repayment. These companies usually buy the bad debt for pennies on the dollar. The older the debt is, the more leverage you have during negotiations. Yet, repaying these debts is no longer a top priority.

FICO Score 9 makes it possible to skip out on debt collections repayment. This new change in how FICO calculates credit ratings is a huge milestone. You have the power to apply all available funds to other debts, getting your score up in a flash!

Find a Way to Merge Your Debts

The worst thing you can do is arrange monthly payments to fix each of your indebted accounts. This will cause constant updates to your report for defaulted debt payments. This does not look good, at all. It will crush your score for the near future, and make your credit rating recovery take a lot longer.

Consolidating your debt into one loan is a great idea. If you have any credit cards in good standings, they may even offer an increase in your credit limit to join your debts. Banks are eager to offer consolidation loans to any client with a reasonable credit rating. For quicker results, one can look into a line of credit from a partner or loved one.

Qualifying for a Debt Consolidation Loan

Trouble can emerge if you don’t meet all the eligibility requirements for a debt consolidation loan. If you are working on your credit rating, you may not have a strong enough credit file to qualify for most consolidation loans. Further, debt consolidation loans for people with bad credit can be pricey and may just worsen the problem.

Eliminating Debts That You Don’t Need

Sometimes it’s appropriate to down-size your way of living. Downsizing your home may be too much of a change, but swapping for a cheaper vehicle could be possible. If so, freeing yourself of a car loan can do wonders for increasing your debt repayment ability.

Best case scenario, you can sell or transfer the vehicle and not lose any FICO score points. The worst situation would be your credit rating suffering for the short-to-mid term. Then, your credit is capable of prospering as a result of your increase in credit affordability.

Use a FICO Score Simulator

Making plays to improve your credit can be risky. These artificial actions may lead to adverse effects. You may do something perceived as good, but have a negative impact on your credit rating.

For example, you may pull a lot of soft inquiries to bump your hard inquiries, which can be a dangerous move. There is no known ceiling for credit inquiries, whether hard or soft. Plus, you can’t protect yourself and your credit rating if an inquiry spam penalty comes into effect.

You can guarantee ideal credit rating changes by pre-determining the effects each move will have on your score. This requires using a FICO score simulator, which factors your current credit state, and the changes you plan to make. With this tool, you can also track your FICO score changes to make sure you always progress in the right direction.

Understanding the Effects of FICO Score 9

The FICO score fluctuates all the time. It will go up or down depending on both recent and historical credit report entries. Negatives like hard inquiries and missed payments will suppress your rating. Meanwhile, positives like clearing old debts and repaying on schedule will help you make a smooth FICO score increase.

The amount of points that change for any one reason is impossible to specify. Yet, there is a general understanding on how much impact a reporting can have on your score. Those that are up to date, may not keep track of the latest changes. FICO came out with ‘FICO Score 9’, which calculates your credit rating in an all new way.

Here’s more insight:

Medical debts: As of 2014, FICO gives a lesser penalty to anyone paying on medical debts. This was due to FICO Score 9 introducing a new way to calculate credit ratings. A report with medical debts average 16 to 22 points less than a report with non-medical debts. This change is due to the Consumer Financial Protection Bureau saying that medical debts don’t always correlate with higher default risks.

Thin Files: Having a small credit file has always been an issue. FICO Score 9 makes it easier for an individual to qualify for a loan without building an extensive credit file. This is perfect for new grads, who could use the credit availability, but would likely have a means of repayment in near time. The all-new algorithm for calculating FICO scores with thin files will help many that are on track for a strong credit score.

Debts From Collections:Debts with third-party collections agencies no longer impact your credit score. This is the most impressive change to how FICO ratings work. No matter how big or small your debt is, your credit score does not have to suffer.

Elite Personal Finance

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