This is a great question! Learning the answer to this and knowing what to look for will help you guarantee your credit success!
Let’s say you have had several deletions, you have started getting re established, your scores have increased by over 100 points. Then you check your monitoring service only to find that your credit score has dropped drastically.
There are a few reasons this can happen:
1) Recent late payments – keep in mind that recent late payments can drag your credit score down between 35 – 100 points. It is vital to your success to stay current on your payments.
2) Increasing the balance on your credit cards – debt ratios is 30% of your credit score. If you allow your credit card balances to creep over 50% of the limit, it will begin to lower your credit score. Look at it like a balance, the lower your credit card balances, the higher your credit score. The higher your credit card balances, the lower your credit score.
We had a client who had a middle score of 558 when she started. After a few months and several deleted accounts, her scores were almost the same. She was upset. After looking through her file, we saw that when she first enrolled, she had a credit card with a $500 limit. She owed $6 on it. Barely a 1% utilization rate. The next time her scores were pulled, the credit card had a balance of $523. She had gone from less than a 2% utilization ratio to 105%!
When I showed her what had happened, she couldn’t believe it. After all she paid her credit card off every month. How does this happen? If your credit card company reports on the 10th and you pay your balance on the 15th, even if you pay it in full, it’s going to report the balance you had on the 10th. Most credit card companies report at a certain time every month for each account. Generally around your statement date. The best way to find out when your card provider reports is to call and ask. Then make sure you make your payment before the reporting date.
The next area…
3) New collections – A new collection can “undo” a lot of progress. Any time a collection agency reports an account they MUST send you a dunning notice and allow you an opportunity to dispute the debt. If you receive a notice stating that a collection agency is going to report on your credit file if you do not respond, make sure you send the letter to our processing office immediately! You only have 30 days. Often it’s a simple process to prevent the initial reporting.
4) Excessive inquiries – a client has been in our program for a few months and has seen progress, so let’s go finance something, right? WRONG! It is very important to keep inquiries to a minimum during the credit repair process. Too many inquiries can have a drastic impact on your credit score. Always consult with your credit consultant before applying for credit.
That wraps it up. To recap:
Pay your bills on time, keep your credit card balances low, take immediate action on all collection notices, and don’t randomly apply for credit!
Stay on top of these while you are enrolled and you are on your way to credit success!
J Eric Rollings