Maintaining a credit score is a real deal, especially when you have a loan to repay. This is stressful and often creates financial burdens. Notably, banks often offer credit relief, but it harms your credit scores.
The question is, is there a way to get credit relief without hurting my credit score? In this blog, we will discuss credit relief and how to get it without hurting your credit.
What Is Credit Relief?
Credit relief means getting financial assistance to reduce, manage, or pay off your debts so your financial conditions can improve. There are several types of credit reliefs, such as negotiating with lenders, enrolling in official programs, combining debts, etc. But what’s everything about?
The goal is to lower your payments, interests, and even get debt forgiveness in some cases. But not all methods equally impact your credit score.
Why Does Credit Score Matters?
Assume ‘Credit Score’ as your financial report card. Banks and other lenders use it to decide if they would like to lend you loans or other financial support. A high credit score means you have good financial records and are expected to grow more. This makes any further loan or borrowing easier and less expensive. On the contrary, a low credit score may block you from any financial opportunity from the institutions or higher interest rates.
This is why keeping your credit score high is essential for all.
Smart Strategies for Credit Relief without Damage:
1. Debt Consolidation
Debt consolidation means combining all your debts and merging them into one new loan. This usually comes with a lower interest rate and a single monthly payment instead of many. This makes your financial life easier and helps avoid missing payments.
Here are some points to note-
- Consolidating all your debts into one may cause a very small and temporary drop in your score. This is called a ‘Hard Inquiry’.
- Your score automatically recovers quickly when you pay on time.
- Avoid applying for lots of credit cards or loans at once. It drops the score.
2. Balance Transfer:
A balance transfer allows you to transfer your debts from one credit card to another with lower interest rates. Sometimes, they also come with even 0% intro rates. But here are some points you should know:
- Ensure to pay off the debt before the promotional period ends. Not doing so may cause you higher rates again.
- Don’t immediately close your credit card after transferring the balance. This can raise your ‘Credit Utilisation Ratio’, resulting in a lower credit score.
Credit Utilisation Ratio: The ratio of ‘How much credit you use compared to what’s available’.
3. Negotiate with Creditors:
Sometimes, the simplest way opens the best opportunities. You can just ask your lenders for better terms, such as lower interest rates or waived fees. This is often called a ‘Workout Agreement’ or ‘Hardship Program’. Here are some points you should know:
- Hardship programs usually don’t hurt your score if you keep up with the new payments.
- Some lenders may freeze your account during a hardship program. This means you can’t use that card for a while. However, this causes minimal impact on your credit score.
4. Debt Management Plans:
Non-profit agencies often help you with your debts. They create a plan to pay off your debts at a lower interest rate. You make one monthly payment to them, and they distribute it to all your lenders. This option doesn’t affect your credit score; however, if you miss your monthly payments, it can temporarily affect your credit score. But before everything, you must look for the right agencies by trusted organisations.
5. Borrowing from Friends or Family:
If you owe a small amount of money, you could ask a friend or family member for a private loan. Here are some points you should know:
- Private loans don’t affect your credit score.
- Make sure to agree on clear terms.
- Pay back on time.
- Remember, relationships are worth more than a credit rating.
Risky Debt Relief that Hurts Credit:
1.Debt Settlement:
When you settle debts for less than you owe, it negatively impacts your credit report. Notably, this negative impact can last up to 7 years. Make sure to use it for your last option only.
2. Bankruptcy:
Bankruptcy wipes out most of your debts. But it crushes your credit score for years.
3. Forbearance Plans:
This option allows you to temporarily stop your payments, but lenders may also close accounts. This heavily affects your credit score.
Key Tips for Protecting Your Credit:
- Always pay on time.
- Don’t open or close lots of accounts quickly.
- Keep your old accounts open.
- Avoid any new charges on credit cards.
Conclusion:
Credit relief is possible without hurting your credit score. However, you must be careful. Choose safe strategies that we have discussed, such as balance transfer, non-profit debts, negotiation, etc. Make sure you make every payment on time and avoid risky solutions for long-term impact. Take small, smart steps to financial improvement.