Rehabilitating Your Credit Score
If you’re like me, the last thing I was worried about during the beginning stages of the pandemic was my credit score. The pandemic forced people to make hard decisions and created obstacles for employment, small businesses, and much more. Now that we’re inching closer to some form of pre-covid normalcy, it may be time to dust off your credit report and look at getting it some rehabilitation.
First, it’s important to differentiate between “rehabilitation” and "fixing” credit. For the sake of this blog post, we’re going to focus on way to rehabilitate your credit score without having to dive into strategies and processes for resolving derogatory credit accounts.
Rehabilitating Credit Scores
During the pandemic, we noticed three common concerns in regards to credit scores:
Paying off credit cards and closing the accounts.
Putting accounts in forbearance.
Altered or missing payment history.
If you’re looking to give your credit score some TLC and find yourself struggling with one (or more) of these concerns, here’s what you can do:
Make sure you have a healthy “Mix of Credit”. During the pandemic, consumers paid off record amounts of credit card debt. Unfortunately, a lot of consumers also closed the credit card accounts once the debt was paid. Closing a credit card account is different than paying off and closing an installment or mortgage account. The payment history associated with that revolving line of credit, once closed, is no longer being included in the credit score algorithm. We recommend you review a copy of your credit report and maintain at least two active revolving lines of credit (credit cards). Learning how to use credit cards can positively impact your credit health and accounts for 30% of your FICO credit score. If you’re looking for recommendations on how to open or use revolving lines of credit, check out our blog post on the subject.
Thousands of consumers put auto loans, credit cards, and even mortgages into forbearance during the pandemic. This was a benefit to many to help ease the burden, but is developing into a complicated issue if you’re trying to rehabilitate your credit. If you had an account go into forbearance, we recommend you review an updated copy of your credit report and make sure the dates, balances, account type, and payment amount is correct for each account that went into forbearance. If the information is incorrect, contact your creditor or bank and provide them with the correct information and ask to have that updated in their system and on the credit report. This is one way that you can protect yourself from future headaches when trying to qualify for a loan.
During the early months of the pandemic, many banks and creditors used temporary codes to highlight individuals and their accounts that were impacted by a natural disaster. This is prevalent among consumers who had most or all of their accounts go into forbearance. However, there are many consumers who never put accounts under forbearance or partial payment agreements that are being impacted by this. These credit scoring codes alter how the account impacts your credit score and can be holding you back from a healthier credit profile. If you see a statement such as “impacted by natural disaster” or "affected by natural or declared disaster” on your credit report, we recommend you reach out to that creditor or bank to request the statement be removed from your credit report.
If you’re looking for additional resources to help you resolve more complicated credit challenges, check out our free resources here.
Ready to tackle those credit challenges for good? Schedule a free evaluation here.