Credit Score Victims

Life Events that May Impact Your Credit

January 11, 2019

bad credit

Credit is important. And when credit gets ruined, the results can be catastrophic. But sometimes, certain live events or circumstances beyond our control can have a negative impact that hurts our credit profile. We’re going to outline six different circumstances that can have a significant impact on your credit and provide potential solutions to help you get back on track with your credit situation.

Identity Theft

Identity theft is a very real fear for consumers. Increased access to technology and online shopping make consumers ideal targets for hackers. Data breaches are happening more than ever, making identity theft rampant. Scammers prey on innocent consumers who end up with stolen information, leading to financial devastation. We’re going to outline some signs of identity theft and talk about what you can do about it.

  1. You see charges you don’t recognize on accounts. Many consumers see identity theft occur on open accounts. When accountholders get their bill or their statement, they may be shocked to see purchases and charges they don’t recognize. The best way to keep to prevent this from happening is to keep track of purchases each month and go through each statement with a fine-tooth comb.
  2. You see accounts you never applied for on your credit reports. You might receive a notification about an account you never applied for via a credit monitoring service you’re signed up for. Or, you might happen to be pulling your credit reports and see a hard inquiry for an account you never applied for. Either way, it’s a good idea to contact the creditor to see where this came from.

Other Things You Can Do

If you think you’ve been a victim of identity theft, there are several steps you can take. We’ll outline a few of them below:

  1. Place a fraud alert or a credit freeze. Fraud alerts and credit freezes can be very effective in combating future identity theft, so if an identity thief is holding onto your information, a fraud alert or freeze can potentially stop any other unauthorized accounts from being opened under your name. Fraud alerts create extra security by ensuring that you verify your identity when you apply for new credit. Credit freezes prevent anyone from accessing your credit. If the damage from identity theft has been extremely severe, you may want to consider a credit freeze. However, if you are looking to apply for a line of credit or loan, then you may want to consider a fraud alert instead. Either way, one of these methods should prevent further fraudulent activity.
  2. Contact Law Enforcement. Believe it or not, you can contact the police if you’ve been a victim of identity theft. By filing a police report, the authorities can investigate who has been using your identity. A police report leaves a paper trail and can be used as evidence of identity theft.
  3. Contact the FTC. The Federal Trade Commission will also look into identity theft. You can fill out a form online called a fraud affidavit. The FTC will ask you for as many details as you can provide about the account that was compromised. Like a police report, this also gives you a paper trail.

Medical Bills

One other circumstance that can have a significant impact on your credit and your finances is illness and the medical bills that follow it. It happens – you get injured, you’re diagnosed with a chronic illness, or you have a medical emergency. Circumstances as these are unforeseen, and they’re never pleasant to deal with. About a third of negative items on consumers’ credit reports are collections, and about half of those collections are due to medical bills. Unfortunately, many Americans don’t have the savings they need to cover these types of bills.

It’s easy to let medical bills slip, especially if you have a lot of them. Not to mention, billing can be so confusing. And, with rising healthcare costs, medical bills are just becoming unaffordable, so it’s no wonder that with all of this, accounts end up being sold to collections. Usually however, medical bills are not a good indicator of whether a person will actually default on a loan or a line of credit. Luckily, there are some changes that have been made to help consumers by the credit bureaus and regulatory agencies as far as medical bills are concerned.

  1. FICO 9: This is FICO’s newest scoring model which was released in 2014. This version of FICO doesn’t factor paid medical bills in the credit score. It’s important to remember though that there are many different types of credit scores and although FICO is most commonly used, not all creditors use the most recent version of FICO when you’re applying for credit, so there is still a chance that your unpaid medical bills can still count against you.
    Additionally, medical bills that haven’t been paid yet count for less under FICO 9. Collections usually have a very severe negative impact on credit reports, but unpaid medical bills won’t weigh as heavily in this version of the FICO score. Because of this, some consumers may see an increase in their credit scores, if this is the version that they are looking at.
  2. 180 days: This is the amount of time that credit bureaus must wait before reporting an unpaid medical bill. The reasoning behind this is so that providers and insurance companies can resolve billing errors before it impacts a consumer’s credit report.
  3. Insurance company payments: Usually, negative information stays on credit reports for about seven years. However, the same settlement that required the bureaus to wait 180 days to report an unpaid medical bill also stipulates that medical debts should be removed from credit reports if the insurance company pays them. This means that if an insurance company doesn’t pay the outstanding balance within 180 days and the debt is reported but the insurance company pays it afterward, then the collection should be removed from credit reports.

One Final Tip: Medical debt can really add up, and it may be tempting to pay it off with a credit card, especially if you have high unused credit limits. One reason you may not want to do this is because it can lead to a high utilization ratio. This ratio accounts for 30% of your credit score. A high utilization ratio can potentially lower your credit score. Not only that, but since credit cards tend to have high-interest rates, you may be getting yourself into debt that you won’t be able to pay off. Many medical providers offer payment plans that can work with your budget. Before putting high balances on your credit cards and paying the interest on them, it’s a good idea to talk with your provider to see what your repayment options are. Some providers even offer repayment plans based on your income.

Military Service

Believe it or not, serving in the military can have an indirect impact on your credit reports. Service members are deployed overseas where they don’t have access to their accounts and although there are laws in place protecting their finances and credit, sometimes accounts can go delinquent while they are deployed. This is unfortunate since some top-clearance jobs in the military require good credit, and soldiers can’t get the clearance they need due to damaged credit. Luckily, the Serviceman Civil Relief Act (SCRA) is in place to protect soldiers’ credit and finances while they are deployed. Below are some of the protections the SCRA offers to service members.

  1. Protection Against Default Judgments: Judgments have a severely negative impact when they show up on credit reports. Usually, if a defendant doesn’t show up in court when they are being sued by a creditor, the judge will enter a default judgment in favor of the creditor. Under the SCRA, however, a court can’t rule against a service member who is deployed and their commanding officer won’t let them leave to show up in court. In some cases, a default judgment can still show up. If this is the case, a service member who was actively deployed can possibly re-open the case with the court. If your credit has been affected by a judgment while you were deployed, then you may want to seek out legal help from an attorney since it’s likely the judgment shouldn’t have been filed against you.
  2. Interest Rates: Under the SCRA, there is a limit as to how much interest companies can charge active soldiers. The maximum is 6% while a service member is on active duty. In order to receive this interest rate though, soldiers have to send copies of written orders to companies they have accounts with.
  3. Evictions: If a service member signs a lease prior to active duty and then is deployed, his or her landlord cannot evict them for being gone. Additionally, monthly rent cannot exceed a certain amount each month, so a landlord can’t price gauge an active service member and then evict them.

Student Loans

Student loans can be especially difficult to pay off and with the rising costs of college, there is no foreseeable way of student loan debt becoming more manageable for most people. As of 2018, student loan debt in the United States reached 1.5 trillion dollars, exceeding credit card and auto loan debt.

It’s no wonder many Americans are having difficulty paying off these loans, and it’s having an impact on their credit reports and credit scores. Many people feel discouraged by seemingly impossible mountains of student loan payments and let them fall by the wayside until they default – nearly 40 percent of borrowers will default on student loan repayments. It doesn’t help that federal student loans are not subject to the statute of limitations and cannot be discharged through bankruptcy since the money belongs to the government. Defaulting on student loans can lead to collections, wage garnishment, and tax returns being taken to offset student loan debt, not to mention higher balances as interest continues to accrue.

So, what can one do to prevent this from happening? Luckily, there are options.

  1. Deferment and Forbearance: Deferment and forbearance are both similar in that you can delay making payments for a certain amount of time without your loans being reported late. This is a great option if you’re in a short-term financial crunch. However, it’s important to note the main difference between the two: when your loans are in deferment, they don’t accrue interest but while in forbearance, your loans continue to accrue interest, even though you’re not making payments.
  2. Budget: Coming up with a budget to pay your student loans is absolutely vital. It may be a tight fit, but it’s a good idea to sit down and evaluate your spending habits. If there are expenses that can be cut out, like eating out or happy hour drinks, it may be worth the sacrifice to pay off your student loans. Also, if you’re able to pay more than the minimum due each month, or start repayments while in school, this can really help you save on interest and possibly shorten your repayment period.
  3. Payment Plans: If your budget really can’t handle your monthly payments, then you can call your student loan servicer to work out a payment plan. One option available to student loan borrowers with federal loans is an Income Based Repayment Plan (IBR). Your servicer looks at how much you owe, your monthly payment, and your income. If your monthly payment exceeds ten percent of your income, then your payment will be adjusted. It’s important to note that there are many other options available, so it’s a good idea to speak with your student loan servicer to figure out which plan works best for you and your unique financial situation.
  4. Student Loan Rehabilitation: This option is available to borrowers who have already defaulted on their student loans. Again, you need to contact your student loan servicer in order to qualify, but it can remove the default from your credit reports if you do everything right. In a nutshell, the way student loan rehabilitation works is you work out a payment plan with your servicer. Once you make nine full consecutive monthly payments on time, the default status is removed from your credit reports. It’s important to remember that the late payments prior to the default will still be reported, but these late payments have a less severe impact on your credit reports.

Final Considerations: Remember that if you are having problems paying your student loans, there are options available. Communicating with your student loan servicer is key to helping you stay on top of payments. If you fail to communicate however, and stop making payments, then there a very likely chance that your loans will default and have a severe negative impact on your credit reports.

Divorce

Divorce is hardly ever simple. Aside from emotional devastation there can also be financial chaos. Not only does it cost a lot of money for the court proceedings, but it can also ruin your finances and credit after the fact if you’re not careful. Sometimes, a debt for a joint account is left to your ex-spouse but if they stop making payments, it can wreck your credit, even if you’re not financially responsible for it anymore as decreed by the court. There are other aspects of divorce that can have an impact on your credit and your finances that we’re going to cover.

  1. Joint Accounts: If you have newly single, you’ll likely have to re-evaluate your budget. The reason being that if both you and your ex-spouse worked, you will be reduced from two incomes to one. If this is the case, it’s a good idea to look at how you can cut down on expenses, whether it be finding a less expensive place to live, or cutting out your five-dollar latte every morning. Either way, budgeting for your new financial situation will be extremely important. Don’t forget to save too.
  2. Taxes: After a divorce, figuring out your taxes can be tricky. You want to make sure you’re getting your fair share of your tax return, so it’s a good idea to consult a tax preparer or tax attorney to make sure that you will get some of these funds back. Also, don’t be afraid to contact the court or consult your divorce attorney if you have any questions regarding the stipulations in your divorce decree.

Bankruptcy

For most people, filing bankruptcy is a final resort. The decision to file bankruptcy is something that most people don’t take lightly. Bankruptcy has such a severe negative impact on credit reports and credit scores. In some situations however, it can be a fresh start. Some reasons for filing bankruptcy are job loss, medical debt, or student loans – although as we mentioned earlier, federal student loans can’t be discharged through bankruptcy. If you’re considering filing for bankruptcy, there are some things to consider such as your amount of debt and the credit implications.

  1. Debt: One of the main reasons people file bankruptcy is because of out of control medical bills. Student loans are at an all-time high as well and although unemployment is relatively low, there is still the chance of a job loss or underemployment for many college graduates. If debt settlement or debt consolidation isn’t an option because you’re barely scraping by on essentials like rent and food, then it may be time to consider bankruptcy.
  2. Credit Implications: When deciding whether or not to file for bankruptcy, you’ll want to think about your credit. Bankruptcy usually stays on credit reports for seven years and in some cases, ten, depending on the type of bankruptcy you file. You have to remember that most if not all of your debts are usually included in bankruptcy and even if these accounts were in good standing prior to filing bankruptcy, they will now show up as “included in bankruptcy” and will have a negative impact on your credit.
    A bankruptcy can make it difficult to qualify for credit – even a secured card - and can make it difficult to rent an apartment. It can also lead to high interest rates if you do qualify for credit, prevent you from qualifying for loans for higher education, or even getting a job since some employers check your credit reports.
  3. Consult an Expert: If you’ve evaluated your finances and credit, but you’re still unsure whether or not to file for bankruptcy, the best thing is to consult an expert. A bankruptcy attorney can offer the best advice on whether or not to file based on your financial situation and circumstances. It is always good to get an expert opinion.

How Credit Repair Can Help

Lexington Law Firm has been helping clients with unfair, inaccurate and unverified items on their credit reports for over a decade. Our credit specialists are familiar with these various scenarios that impact finances. Our team of attorneys and paralegals have helped millions of clients who have faced difficult life circumstances that have negatively impacted their credit such as identity theft, medical bills, student loans, military service, divorce, and bankruptcy. Give our credit specialists a call today for a free credit consultation to see if we can help you.

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