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Most consumers know that credit scores and bankruptcies can impact their financial well-being but don’t understand how. Credit scores can determine whether someone can get a loan and if their interest rates will be low or exponentially high. There are things that consumers should be aware of to keep their finances stable.
One area that causes confusion for consumers is how to dispute discrepancies on their credit report.
“You can write a letter to the three credit bureaus – Equifax, Experian and TransUnion- that includes documentation to show the bureaus that their reports are incorrect,” said Matt Alden, a Senior Attorney in the Economic Justice Group at The Legal Aid Society of Cleveland. “The credit bureaus would then have 30 days to investigate the inquiry and write a response to the consumer stating that they will delete, keep, or change the error on the report. If the credit bureaus will not change the incorrect information, the consumer can hire an attorney and respond to the bureaus according to the Fair Credit Reporting Act.”
Credit pulls can also impact your credit score. Hard pulls are made when you want to borrow money from a lender for car and home loans or when applying for new credit cards. Too many hard pulls can decrease your credit score. Soft pulls are made when a company pulls your credit to verify your name, address, work history, payment history, if you filed for bankruptcy and more. Some soft pulls are made without the consumer’s permission. An example of this is when you receive mail from auto and home insurance, credit card and loan companies. These companies have already pulled your credit to determine that you pre-qualify for their offers. Soft pulls don’t affect your credit score.
Another area that consumers struggle with is bankruptcy.
“You should file for bankruptcy if your wages are about to be garnished, you’re facing repossession or foreclosure, or you can no longer afford to make the payment,” said Matt. “You should also file if you have more than $10,000 of unsecured debt that you can’t realistically pay off, facing an IRS collection or if the Department of Education is coming after you for student loans.”
One myth about bankruptcies is that it will ruin someone’s credit forever.
“Bankruptcy does not kill credit because your credit is already tanked. Not making the payments is not going to make your situation any worse,” Matt said. “Most people still have an income, and they can get secured credit cards. Most secured credit cards require at least $300 on them and must be paid in full. You can use it to buy groceries, gas, and car repairs. They can help to reestablish credit.”
If you have brief questions about money issues including debt and bankruptcies call the Legal Aid Economic Justice Info Line at 216-861-5899. Need further assistance? Legal Aid may be able to help! To apply for assistance, call 888-817-3777, or complete an online intake 24/7 at lasclev.org.
Tonya Sams is a Development & Communications Manager at The Legal Aid Society of Cleveland
