There are a large percentage of individuals that have debt. The sizes of those debts vary tremendously. Most individuals with large debts are offered deals to get their debts erased and financial status back to normal. However, what about the individuals whose debts are not large enough to receive those offers? If you have found yourself in a small debt that you want to erase, fear no more. There is a new credit scoring that is responsible for forgiving small debt. In 2009, FICO released a way of credit scoring that aims at increasing your credit score based on you being an individual who is able to manage credit. Continue reading to find out more about small debt forgiveness through new credit scoring.
Small Debt No Longer a Problem
Before 2009, all debt, regardless of the amount, was reported on your credit report in turn affecting your credit score. Since then, any debt that started at a number totaling under $100 is eligible to be erased from your credit score. Even if your small debt has increased from $50 to $500, the debt qualifies under FICO’s new scoring system. Keep in mind though— any type of debt, whether big or small, is still recorded on your credit report. This type of thing must still be available for lenders to see when you are trying to get a loan or open a new line of credit. So, do not involve yourself in the pattern of accepting small payments and deciding not to pay them. Those companies will report nonpayment to the credit bureau and it will be reported on your credit report. It will not be reflected by your credit score, but it can result in your inability to do a variety of things that depend on the findings on your credit report, including buying a new house, getting a credit card, or purchasing a car.
Large Debts Still Exist
Although small debts no longer affect your credit score, large debts still play a big role in your credit score. FICO’s credit scoring system is designed to help creditors determine how well you are able to manage your credit. This includes a combination of different debts, like student loans, credit cards, mortgages, personal loans, and any payments that are currently in collections status. In turn, larger debts depend on a few factors:
- The age of your debt—a debt that has accumulated in the past few months will be more of an effect on your credit score than one occurring a few years ago.
- The size of your debt—the larger the debt, the bigger the impact will be on your credit score.
- The quality of your debt—for instance, if your debt is from just one student loan, your credit score will not be as affected.
Get Your Credit Back on Track
Regardless of your size of debt, it is important to work toward getting a decent credit score. At first, getting your credit score to a decent number may seem difficult, but be mindful that the task will require a lot of hard work and determination to complete. You may even find yourself needing the help of a financial advisor. Getting a decent credit score can be beneficial for you if you want to purchase a new car, receive a new loan, get a credit card, purchase a new home, or even obtain good employment. If you are ready to get your credit score at a decent number, below are some tips you can use to get your credit back on track:
· Keep Up With Payments.
Having a pattern of missing payments can hinder your ability to maintain a good credit score. When you keep up with payments, you let creditors know that you can manage your credit.
· Mark Your Credit Limit At 15%.
Constantly reaching or going over your credit limit can negatively impact your credit score as well. A good rule of thumb is to keep your credit card use minimal and keep your credit card limit below 15%. If that number is currently not achievable, start of slowly and build to that point.
· Keep Credit Card Applications At A Minimum.
It may seem beneficial to have more than one credit card, but if you do not need it, do have them. If creditors see that you apply for more than one card at a time, this could throw red flags and encourage them not to approve you. More than one credit card rejection will negatively impact your credit score as well.
In conclusion, the new scoring system set up by FICO has help many individuals improve credit score by getting rid of small debts. But this new scoring system does not eliminate all debt and credit report findings. It is still your responsibility to manage your credit properly and avoid increasing your own debt.