4 Benefits of Credit Repair

Benefits of Credit RepairBenefit #1: People with poor credit are unable to obtain car loans, credit cards, or even an apartment in their own name. In a credit-driven world, a ruined credit reputation or a status of being deemed “unworthy for credit” is both a stigma and a drawback in everyday life.

A primary benefit of working to repair credit is to reverse that status, over time and in steps that are proven to work for most people. Going from a place in life where every application for credit is met with “sorry – application denied” to “Welcome” is a huge improvement for those going through the process.

Having the ability to purchase a new car (or, even a used car) with a note and obligation to make periodic payments is life-enhancing. Applying for a new, higher-limit credit card is, likewise, a real step forward for someone who has gone from a 420-credit score to one that stands in the 650 to 750 range. People with “poor” credit are pariahs in the consumer credit world; people with “very good” to “excellent” credit ratings are, on the other hand, A-listers in that same milieu.

The ability to work freely in the area of obtaining and maintaining credit in a credit-driven society is a huge advantage for those who qualify. Credit, today, is the medium by which every type of financial transaction is undertaken – from making purchases that are small (from groceries to a haircut) to very large (a personal residence or a new car). Those who are “credit worthy” can use their sterling credit reputation and a pen to conclude these common types of transactions. Those who have bad credit histories and reputations know, intrinsically, that it is futile in most cases to even apply.

… a primary benefit of repairing bad credit is to become “credit worthy”. Successful credit repair is a process that gives individuals an opportunity to reverse their “status” in society – to go (over time) from being a “credit risk” to becoming a consumer who is pursued by lenders and consumer creditors, and thereby regain the ability to make purchases on credit…

Benefit #2: As noted previously, credit scores indicate the likelihood that a person will default on a credit card or loan obligation.

Having a low credit score indicates that a person is a riskier borrower than someone with a higher credit score. Lenders and companies that offer credit take “risk” into account when making lending decisions. One way to help ameliorate such higher risk with people who are “credit risks” is to charge them higher interest rates than their more credit-worthy counterparts.

Those with low credit scores who do manage to qualify for a loan or credit will pay more, over time, in the way of interest charged than those in the same boat who have a high credit score. This is simply a “fact of life” in the world of credit. It can be a very costly “fact”.

Interest rates have a huge impact on the cost a consumer pays for borrowing money. Loan payments are made up of Interest + Principal – low interest rate loans are easier to pay because there is less interest added to monthly principal payments. The length of time it takes to pay a loan, and the amount of total interest paid over the life of a loan are both factors that come with “benefits” when the interest rate is low rather than higher.

another benefit of successfully undertaking credit repair is that the cost of credit (interest rates charged) is higher for people with bad credit. Likewise, other terms of borrowing (life of a loan, security required, etc.) can have a negative effect on people with bad credit or poor credit histories…

Benefit #3: Filing for, and completing, a bankruptcy can be the beginning of the credit repair process.

It is true that a bankruptcy showing on a consumer’s credit report is a negative that will remain visible for up to ten years post-bankruptcy. The fact that debts have been wiped clean (in Chapter 7) or paid down (in Chapters 11 or 13) pursuant to a plan are positive factors that redound to the benefit of the bankrupt consumer.

The “fresh start” that bankruptcy often affords a debtor is a part of the beginning of the credit repair process. A decided benefit of credit repair, then, is the fact that a consumer has the ability to move through bankruptcy and back into the world of consumer credit with an almost-clean slate.

Ancillary benefits also obtain after completing bankruptcy. For one, the stress of constantly trying to manage finances that are in disarray can begin to ease post-bankruptcy and as one begins to repair credit. Additionally, not having the burden of out-of-control debt can also relieve stress on personal relationships and in the work environment. Finally, the stigma that often attaches to people who have gone through bankruptcy – and even those who haven’t – is most often lifted when one goes from “credit risk” to “credit worthy”.

ancillary benefits of repairing one’s credit include the relief of stress from dealing with “bad” credit, including stress at work and in personal relationships. The stigma of bankruptcy and of being a “credit risk” will also disappear over time… Credit repair allows people to “get their lives back” with a “fresh financial start”

Benefit #4: Finally, the fourth benefit to highlight is a compendium of advantages that attach when a consumer undertakes to repair his or her credit standing, worthiness, and risk factors. A credit-worthy credit history shows potential lenders that a consumer is likely to repay loans in full and on time. This will help a consumer lock in better rates and terms on car loans, home mortgages, and other financial products.

Beyond those factors, the advantages of good credit extend far beyond receiving better and lower rates on loans. The following are a few of those advantages:

  • Qualifying for excellent credit card deals and offers – not all credit cards and credit card offers are the same. For people with very good credit, such deals include low interest rates,reward offers, and cash-back opportunities. Studies have shown that credit card “perks” encourage the continued use of cards for transactions which have the ancillary effect of boosting credit scores
  • Receiving better car insurance rates – some insurance companies will factor in credit scores when setting monthly premium rates in order to better predict potential losses on customers. A low credit score will affect rates in a negative manner; a high credit score will have the opposite effect
  • Landing a job – Some prospective employers will ask job candidates for their credit scores as part of the pre-hire process. They will use such information (after obtaining the job candidate’s permission) to look for “red flags” such as a prior bankruptcy or frequent delinquencies in payment to gauge whether or not a person who is a “credit risk” may also be an “employment risk”
  • Improving chances of getting an apartment and no-deposit utilities – increasingly, landlords are looking at credit scores and reports to gauge whether or not a potential renter is a good risk. Likewise, utility companies now look at credit histories to determine whether or not a potential customer is required to put up a sizeable deposit before being taken on as a customer, or, in some cases, whether or not the customer needs a co-guarantor on the account

the list of advantages to successfully undertaking personal credit repair include the areas of credit card worthiness, car insurance rates, and the ability to obtain a good job or suitable and affordable housing… the list is long and goes beyond the 4 benefits of credit repair as discussed in this article…

Picture Credit: whitesession