There is more to credit repair than meets the eye. It would be great if you could pay your bills on time and assume that your credit scores would be fine. Unfortunately, this is not the case. The FICO credit scoring model measures dozens of factors on your credit report. These days, when every point can have an impact on the interest rates you pay on your loans, you need to be an educated credit user.
Credit Repair and Your Accounts
When it comes to credit repair not all forms of credit are created equal. The FICO scoring model has a built-in bias against consumer credit, which includes store cards as well as financing company loans for consumer goods. Store cards are easy to identify and are offered by most large department stores and retail chains. Financing companies often fund and manage loans for consumer purchases like furniture, bedding, and electronics.
The Credit Score Logic
The reason behind the FICO bias is that this form of debt often comes with a high cost and poor terms. From a consumer perspective this type of debt can be convenient and, if used intelligently may even be the lowest cost financing option. For example, Rooms-To-Go, a large furniture retailer, is well known for offering fixed-term no-interest, no-payment financing. This is a terrific offer as long as you are able to pay the full balance at the end of the no-interest term. Unfortunately, from the credit repair perspective, this type of financing means that new payments are looming on the horizon increasing the measure of credit risk.
Credit Repair Strategy
The other problem with consumer credit, including store cards, is that these accounts are normally opened with a credit limit barely above the amount of the purchase. This creates an instantly maxed-out account which will send your credit score into a nosedive. In the credit repair business we see this all the time, but I really don’t want to demonize store cards or consumer credit. Our philosophy is that credit usage is fine. It can make purchases convenient and easy to manage. But it is important to understand the relationship between your credit actions and your credit repair results. Use your credit, but if you are going to be using your credit scores in the near term, you should plan on reducing your balances at least 60 days in advance. And as always, if you have a credit repair situation that you would like to discuss, just pick up the phone and give us a call!