Can Co-Signing a Loan Affect Your Credit Score?

When you co-sign a loan, you have a lot to lose and little to gain. As a co-signer, you are legally responsible for repayment of the entire loan, even if the main borrower stops making payments. It is very important to ONLY co-sign with someone you trust and with whom you have open communication. In the event that the borrower stops making payments, your credit can be damaged. Luckily, Veitengruber Law has had great success helping our clients mitigate the damage caused specifically by co-signing for a borrower who left them holding the bag. The first thing we do is have our clients follow these four steps:

1. Resume Monthly Payments

If it is still possible, resume the monthly payments on the loan. The loan might be for something that does not directly benefit you in any way, but in order to protect your credit, you should make timely payments if possible. Payment history—that is, on time payments made in full—is one of the most important parts of your credit report. If your co-signer misses one or more payments, your credit score can quickly start dropping. To lessen the damage, resume payments ASAP.

2. Pay Off the Loan in Full

If you can afford it, paying off the full amount of the debt owed can actually increase your credit score. The amount of total debt you possess is another huge factor that goes into determining your credit score. The less debt you have, the more your score will increase. You can gain back points you lost for missed payments by eliminating that debt completely.

3. Talk to the Creditor

Credit reporting agencies can only report what your creditors tell them. Ask the loan company if they will work with you to limit the damage to your score. They may report your account as in good standing if you agree to pay off the debt in full, or make a plan to bring the loan current. Many creditors are willing to work with borrowers if it’s probable that they’ll get a return on their investment.

4. Give it Time

If your credit score does take a hit from co-signing for a borrower who did not fulfill his/her end of the deal, the only way to fully repair your score is to give it time. Any missed payments will remain on your credit report for seven years no matter what you do. However, a consistent history of timely payments and low debt levels will help you improve your score as the years go by. During this time, the age of your credit will increase as well, adding more points to your overall score. By the time the incident is off your credit report, it is very possible to have a better score than ever before.

If your credit has been damaged by co-signing, Veitengruber Law can help. We understand how creditors work and can provide individualized solutions to improve your credit. A low credit score can cause a lot of stress and financial anxiety. Even if your credit is absolutely tanked and you can’t possible imagine a solution, call us. We’ve never met a credit score we couldn’t help!

How Can I Protect My Credit Score During the Pandemic?

credit score during the pandemic

Protecting your credit score during the pandemic of 2020 is definitely challenging. With widespread unemployment, income loss, and people out of work due to social distancing measures, many Americans are worried about how the current state of the economy will impact their finances long-term. The uncertainty of things might have you putting off big purchases for now, but you’ll want your credit score to be ready should you need it in the future to buy a house, a car, or secure a loan. Here are a few ways to protect your credit score now so you can assure more financial opportunities in the future.

1. Watch Your Credit Report Closely

Even during better economic times, it is important to keep track of your credit report. Signing up for a free credit monitoring service can help you stay on top of your report and score. Through April 2021, the top three credit bureaus are offering to allow consumers to access their credit reports for free every week. By keeping up with your credit report from week to week, you can make sure your lenders are following any agreed upon accommodations and that your identifying information has not been compromised.

2. Keep Up with Your Payments as Long as Possible

A late payment here or there might not seem like a big deal, but these negative marks on your credit report can cost you big time later. Late payments can stay on your credit report for up to seven years. For this reason, it is important to make your payments on time and in full for as long as you possibly can. If you know you are struggling and may not be able to make the minimum payment on time for an account, contact your lender immediately. Many lenders are being proactive and offering extensions, interest rate reductions, forbearance, and other flexible options for those impacted by COVID-19. Make sure you get written confirmation of any agreement made with your lenders.

3. Understand Your CARES Act Protections

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides consumer protections to help you maintain your credit score through the pandemic. Some agencies and companies that report borrower information to credit bureaus have to follow specific requirements during this time. If you request special accommodation under the CARES Act, your creditors will report your account to the credit monitoring agencies based on your credit score at the time the accommodation took effect. As long as you are working with your lenders and sticking to your agreement, your credit score should be minimally impacted.

4. Protect Your Identity

This is always crucial, but amid a global pandemic that has seen a rise in identity theft scams, it is more important than ever. Hackers and cybercriminals can use your information to open accounts and access new financial resources. If unchecked, this can have a major negative impact on your credit score. Much of the damage is reversible, but it will cost you time and money. This is why it is worth it to sign up for a credit monitoring service to ensure you are on top of how your information is being used.

It is more important now than ever to be proactive about protecting your finances. If you are worried about falling behind on debt due to the COVID-19 pandemic, Veitengruber Law can help. After consulting with you, we’ll suggest debt management solutions that are tailored to your unique situation to help you get through the pandemic.

5 Mistakes to Avoid After NJ Bankruptcy

NJ bankruptcy

After your NJ bankruptcy, a common concern is how to re-establish your credit score. The real challenge is creating new financial habits so you don’t find yourself back in the same hole all over again. At Veitengruber Law, our holistic approach to financial health means our job doesn’t end after the bankruptcy is closed. We work with you to repair your credit and create healthier financial habits.

 

Top Mistakes to Avoid After a Bankruptcy Discharge:

 

1 – Ignoring your credit report

When rebuilding your credit subsequent to a bankruptcy discharge or reorganization, you will want to be very attentive to your credit report. Your creditors are supposed to report any discharged debts included in the bankruptcy to the credit bureaus. These reports should show a zero balance and include a note indicating the debt has been discharged. It is crucial to follow-up on this and ensure that all creditors are reporting to credit bureaus correctly. If discharged debt is being wrongly reported—as either a charge-off or an open account—late or missed payments can continue to show up on your credit. This can further damage your score and make it more difficult for you to get new credit.

2 – Applying for multiple new credit lines

It can be tempting after bankruptcy to rush out and apply for a gaggle of credit cards or loans in an attempt to quickly repair credit. However, it is important to give your credit score time to rebound before applying for new credit. The impact of a bankruptcy is strongest in the first year after filing, although it can stay on (and affect) your credit report for up to ten years. Instead of rushing into opening several credit lines at once, be patient and take the time to research your best options.

3 – Failing to read the fine print

When you do start applying for credit cards, it is important to remember that not all credit cards are created equally. Some credit cards will be more helpful to those rebuilding post-bankruptcy. A secured card, for instance, allows you to deposit cash as collateral up front to create a line of credit. That way, you are not able to charge more than your initial deposit. With any card you choose, it is important to read the fine print of your terms to make sure the card will work in your favor.

4 – Falling for credit repair scams

Many unethical “credit repair companies” make big promises about performing miracles to improve credit scores, but they rarely ever deliver the results promised. These companies rely on misinformation to scam those that don’t know much about how credit works. Some of their tactics may even be illegal. Keep in mind that if something seems too good to be true, it probably is.

5 – Making things too complicated

Ultimately, when it comes to rebuilding your credit after bankruptcy, you need to go back to the basics. What bad habits caused you to file for bankruptcy in the first place? An unflinching assessment of your spending habits will help you determine which factors led to the bankruptcy and determine where you need to make changes. Figure out what your credit-bingeing triggers are and work toward setting spending limits for yourself. Simple things like making on time payments, keeping debt to a minimum, and sticking to a healthy budget are excellent foundations of any financial strategy and will get you on the road to financial health quickly.

You’ve been through the hard-fought financial battle of bankruptcy and come out victorious on the other side. Now is the time to think positively about your financial future. Rebuilding your credit after bankruptcy takes time and patience, but you can use the knowledge and financial savvy you’ve learned along the way to move forward to a brighter future. Veitengruber Law is here to help. We are skilled in advising clients and creating easy-to-follow strategies to rebuild credit. Call for your free consultation today.

How Identity Theft Affects Your Credit Score

NJ credit repair

What (all-too common) crime can happen to you without your knowledge, making virtually everything in life more difficult? Two dreadful words: Identity Theft. Unlike some medical diseases, identity theft doesn’t discriminate; it can strike anyone at any time. The worst part about being a victim of identity theft is that it can have a seriously negative impact on your credit score and it can prove to be difficult to fix.

More people than you realize have been severely impacted by identity theft. When an impostor uses another person’s identity to make a purchase and fails to pay the bill, a storm cloud rolls in. The scammer has zero intent to ever pay the debts they accrue under your name; therefore, you’re left to clean up the aftermath. You may not even realize that your identity has been stolen until a credit agency contacts you. By this point, your credit has likely already taken a major hit.

Your credit score is your representation as a responsible individual regarding money matters. Unpaid bills can have a lasting, damaging impact on your credit report, which can then snowball to affect other areas of your life (obtaining housing, buying a car, getting a decent job). Because payment history makes up about 35% of your credit score, late or nonexistent payments have a momentous effect on your “credit worthiness.” In addition to unpaid bills, identity theft can leave other negative marks on your credit report. Here are five ways that identity theft packs a punch:

1.      New Accounts

Adding a new account to your credit report or getting a new loan shouldn’t affect your credit score as long as you aren’t adding a plethora of new accounts all at once and you’re making regular payments. However, when an impostor opens a new account in your name and fails to make any payments, your credit score will slowly begin to tank. Every month that passes without payment received will lower your credit score further.

2.      Inquiries

If an identity thief is applying for new credit with your personal information, the lender is going to check your credit report. These are known as credit checks, or “hard inquiries” – each of which show up on your credit report. Each inquiry will affect your credit score by dropping it a couple of points. Your score will drop because credit scoring models regard “hard inquiries” as a sign that the consumer is shopping for credit.

3.      Collections Accounts

After no action occurs for 6-12 months on an unpaid debt, the lender will turn it over to a collection agency. This causes a “second action” to be taken, and a collection account will appear on your credit report. Unfortunately, this will have an extremely harmful effect on your credit score. Often, medical identity theft leads to the appearance of a collection account. This occurs when an impostor uses your identity to obtain medical services or treatment, but has no intention of paying the bill(s).

4.      Greater credit utilization ratio

Another significant piece that counts toward your credit score is the amount of debt you carry. When the scammer “goes shopping” and adds charges to your account (unnoticed), your overall amount of debt rises. Even if the scammer opens a phone plan or house utility but doesn’t pay the bill, the provider will report it to the credit bureau. A negative ding will appear on your report, damaging your credit score. A continuously increasing amount of debt will continuously drop your credit score. The higher your credit utilization ratio, or the amount of your available credit that you use, the lower your credit score will fall.

5.      Higher Auto Insurance Rates

In every state except California and Massachusetts, auto insurers utilize your credit score to set rates. A low credit score can cause a 20 to 50% increase in auto insurance premiums. Even if you have a depressed credit score, an insurer can’t reject you, but they do have the ability to hike up your premiums without an explanation.

Nobody wants to find out that their identity was stolen, but it can and does happen. Being knowledgeable and prepared as to how it can affect you is crucial. If you’ve been the victim of an identity thief, Veitengruber Law can help you deal with the emotional and mental frustration as well as the financial damage that has been done. No matter how low your credit score has gotten – we will guide you through getting it back to a respectable number again.

Should I Pay my Debts or Hire a Bankruptcy Attorney?

bankruptcy attorney nj

When you are face to face with a huge pile of unpaid debt, you might wonder if it would be more cost effective to put a pay-off plan into effect or to make an appointment with a bankruptcy attorney. Naturally, both options are going to cost money – but there are a few questions you can ask yourself to help you determine which option will end up costing you less in the end.

Firstly, it must be said that there isn’t a cut-and-dry, cookie cutter answer to this question, so please take the advice herein with that knowledge. There are a number of variables that will affect the direction you ultimately choose to take, like:

  • How much debt do you have?
  • What type(s) of debt do you have?
  • What is your current income?
  • Do you foresee your income increasing in the near future?
  • Is there a potential financial windfall in your near future (like a work bonus)?
  • How long do you want to spend paying off your debt?
  • Are you ok with losing credit score points (temporarily)?

If you are currently not even (or barely) able to make the minimum payment each month on sky high credit card debt, you’re looking at a very long road ahead and you will have paid a huge amount of interest at the end of your debt pay-off journey. In this case, filing for bankruptcy looks like it would be a better decision, because your bankruptcy attorney’s fees are likely to cost you less than how much you’ll be paying in interest over the years. Also, by filing for bankruptcy, you can rid yourself of your burdensome debts as soon as you case is approved for a discharge. This will allow you to start a savings account, put your child through college, or otherwise focus more of your income in a way that you weren’t able to before.

The bankruptcy route will knock your credit score down for awhile, but if you’re working with a bankruptcy attorney in NJ who knows what he’s doing, you’ll be counseled on how to potentially bring your score even higher than it is now. This can usually happen in 12-18 months after a bankruptcy discharge if you follow the recommendations given.

On the flip side of the coin – maybe you have more debt than you’d like to have but you’re not drowning in debt. This is not an uncommon situation to be in. If your income is substantial enough to handle your monthly cost of living plus (give or take) double your minimum payments on at least one of your debts, you may be a good candidate for avoiding bankruptcy.

It’s impossible to give you a completely straight answer to this question, as mentioned earlier, because everyone’s financial situation is so unique. The above general tips are just that – general – and you should base your final decision off of the in-person advice you get from an experienced NJ bankruptcy attorney. He will be able to comb through your debts and assets in order to properly guide you toward making the choice that will best fit your finances.

Get in touch with a reputable New Jersey bankruptcy attorney today – most offer free consultations, so you have nothing to lose but debt!