Hey everyone, I’ve been reading around blogs and noticed that quite the discussion has been taking place regarding credit card hardship programs. Of course, I’m happy about this because I love to talk about realistic ways for consumers to get out of debt without having to hire some third party, $3,000 company to help. Credit card hardship programs just happen to be one of my favorite ways to advise to consumers in times of financial hardship and are an incredibly interesting concept. One of the big questions revolving these programs is how they will affect credit scores. So, I intend to answer that question today!
Before We Talk Credit Scores, Let’s Talk Hardship Programs In General…
The basics are that the credit card companies know and understand that financial hardships happen. Throughout the past several years, we have been facing economic lows that for a couple years in a row were compared to the great depression. We know we’ve had money problems and so do the banks! The banks know how many people are filing bankruptcy because it costs them money every time; they know how many homes are being foreclosed on because they are doing the work; the simple fact is, they know what is go
ing on in the world of finance.
The good news is, because they know that money problems happen, credit card hardship programs were created. These programs showed how willing big name lenders were to reach into their own pockets and help out a customer in need. Of course, there is a marketing perspective that you can take on the matter…The lenders show you that they are willing to help you and, when you get back on your feet, you are more likely to work with them again and refer them to your friends.
I know you probably already know how most credit card hardship programs work so, I won’t go over that today. But, if you’re not quite sure what they are or how they work, please feel free to read this article.
How Credit Card Hardship Programs Affect Credit Scores
Before I get into my opinion of how credit card hardship programs, I feel like I have to say something. There are credit experts and then there is F.I.Co, the Fair Isaac Corporation. That being said, the algorithms used to create the F.I.Co score are said to be more complex than Google Search Algorithms. Think of that for a moment, there are people being paid millions of dollars per year to try to crack the code and get on the first page of Google because of how complex their algorithms are. The bottom line is, if anyone says they know exactly how anything will affect your credit score, they are most likely telling you a lie.
On the other hand, I have worked with clients on everything from helping them to get prepared for credit card hardship programs, enroll into the programs, keep their programs within their budget until pay off and worked to improve credit scores after the process. So, with the experience I have in working with credit card hardship programs has given me a lot to work with in researching their affect on consumer credit scores.
The truth is, most credit card hardship programs do have a negative affect on credit scores. No matter who tells you they don’t, they do.
However, the affect on credit scores is minimal compared to other forms of debt relief such as credit card debt settlement or consolidation. To the best of my understanding, there are a couple of things that play a role here…
Most Lenders Report “Account Closed By Consumer” – If they wanted to, they could report that the account was closed by the lender but, in all actuality, when you agree to sign up for these programs, you are agreeing to close your account. When a lender reports that they’ve closed your account, it is most likely because you have gone far past due but, if they report that you closed your account, it’s probably a step to get your finances in check.
Terms Change – After closing your account, you are given a lower interest rate, lower monthly payment, your available credit goes away completely, ect… The terms only change on a loan this drastically for one reason. Although, I don’t have a big wig friend working for F.I.Co, I have to use common sense and say that detecting these terms changes would reduce your credit score. I’ve seen the reductions myself with 95% of clients I’ve worked with.
So, when looking at these signals, you can probably understand why there will be a reduction in your credit scores if you decide to sign up for credit card hardship programs. But, when you consider these signals against those shown by credit card debt settlement programs or debt consolidation programs, the effects are very minimal in comparison.
The Big Question: DO YOU REALLY CARE?
Lets be honest here. I know that you’ve worked so hard for your good credit score, we all have. I know that your credit score won’t come back easy if you make a big mistake and cause a drastic reduction. But, on the other side of things, I know that if you’re really going through a financial hardship…if you are struggling to put food on the table…you can’t seem to pay bills on time…you don’t see an end to the struggles. If you are struggling this bad, do you really care about your credit score or are you going to take proactive measures to reach financial stability!
I don’t mean to sound harsh. I do this because I love my fellow consumers and want us all to live in financial and any other form of harmony you can imagine. But, if you are concerned about your credit scores, you probably aren’t struggling that bad. Chances are, you’ve made your payments on time, you’ve eaten in the process and, the only thing that you should be worried about is lack of budgeting. If that’s the case, it’s time to start putting together a budget spreadsheet. You’d be amazed at how many problems these nifty tools I like to make on Google Drive can solve.
The Bottom Line…
Yes, credit card hardship programs will have a small, negative affect on your credit score. But, if you are really dealing with a financial hardship, you’ve already made late payments, you may have spent over your credit limit as well! If this is the case, your credit has already been affected and it’s time to worry about what will make you financially stable, not what will change your credit score! If you’d like to talk about our unique situation, I’d love to see what I could do to help. Just fill out this form!
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