Bad Credit – Fix it or Wait it out?

You have bad credit. But what do you fix, how much credit should you fix, and how fast should you fix it?  But the question remains as to bad credit – fix it or wait it out?  Derogatory or bad credit is probably the top decline reason for all loans.  Sometimes credit should be fixed, and sometimes it should not. The premise of always fixing bad credit needs to be reviewed.

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Bad credit - Fix it or wait it out?
Bad Credit – Should you even try to fix it?

Faq Frequently asked questions on fixing bad credit

Should I fix my bad credit or just wait for it to drop off my credit bureau?

Try to fix your bad credit monthly instead of waiting for it to drop off your credit file. Some derogatory items may show an updated reporting and that delays the time they take to drop off. Cleaning up the credit monthly will give you the highest consistent score.

What is the best way to fix my credit?

Get a copy of your credit report and see if there are any errors. This includes the status of your account, the number of late reported payments and the amount shown as owed. If you believe any of the items are wrong then you can dispute them with the credit bureau. Creditors must respond to disputes within a certain number of days or the derogatory item may have to be removed by the credit bureau.

How high can my score get by cleaning my credit?

It will depend on how many reporting mistakes are on your file. In many cases the score can be increased 50 to 100 points within a few months. Continuing to work on your credit will keep your score as high as possible.

Joint Accounts

You have joint accounts with someone and they are not paying them. Have a conversation with them.  Trying to fix that bad credit right away is premature.    If a Partner or Spouse was responsible for paying an account and does not, it will damage your credit if it is a Joint account.   There may have been a household verbal agreement that the Partner or Spouse was responsible. That does not matter on the credit report.   Late payments will show up for both of you.

Other questions first need to be addressed. Will you stay with your Spouse or Partner and are they communicating and working with you on the non-payment?
If you are not working together, then there is not much point to try fixing the credit right away.  Closing the Account may be the first step. If they are working with you then make a plan on whether or not it will be paid, by whom and when. Decide if you want to keep the Account open. Then later, derogatory reports can be disputed.   These issues need to be handled differently if the derogatory credit issues are with a business partner.

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Bad Credit – Fix it or wait it out?

The bad credit is already old

Bad credit, late payments, charge-off’s, foreclosures, and other derogatory items on your credit that are already 5 years old or older are not worth the cost and effort to try to remove them.  This includes 30, 60 and 90 day late reports.   After 7 years, many items drop off automatically. For those items, it does not make sense to manually try to remove them.

Federal and State Tax liens

These are much harder to remove.  It is also much easier to pay them and get a statement of “released” placed on the bureau just below the item rather than trying to get Tax Liens removed. If you have a payment arrangement, keep a copy of the payment arrangement and provide it to anyone that will look at your credit report.  Tax Liens on which there is a payment arrangement are looked at far more leniently than Tax Liens that do not have a payment arrangement in place.

Looking at some of these issues can help you decide on bad credit – fix it or wait it out?



Business Partner with Bad Credit? 4 Quick Workarounds

Have a business partner with bad credit?

Pick from several loan options when you have a  business partner with damaged credit.    That partner can even be you!

An associate with a low credit score will cause challenges.

Review 4 fast fixes below are designed for EXACTLY these situations.

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Apply above now and get business funding today with business owners that have low credit scores.

Temporary Options and Solutions:

1. Good Credit Owner: Applicant #1

The stronger credit owner should always be the first applicant on any request.

Never list the bad credit owner first. A strong credit owner may be enough to carry an approval and cause the lender not to reject for remaining bad credit.

2. Change in Ownership Percentage

The most impact that can be made fast is lowering the ratio of ownership of the partner with bad credit.  They may not agree to this.    However, lowering it to less than 20% should prevent declines and less than 10% would be even safer.

This will not be popular with many owners. Companies can consider options including a remix of company stock ownership.

Higher salaries and a commission structure can be increased. Another compensation is to pay more towards IRA’s, Pensions and Savings plans.   The change can be temporary.

3. Change Articles of Incorporation

If the partner with hurt credit agrees to lowering their stakeholder amount, the Articles of Incorporation should be changed to reflect this.  Many States show ownership breakdown in the Articles of Incorporation.

4. Updating the Secretary of State

Update the Secretary of State listing which lists information on the company.  Remove the owner with bad credit, or their lower percentage.  List the owner with better file as the main owner.

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FAQ Frequently asked questions on getting a business loan with a partner with bad credit

Question: Can we get a loan if my business partner has bad credit?

Answer: Search for lenders that offer programs specifically for business partners with bad personal credit and low bureau scores. Ask about approval requirements in advance, including a minimum credit score.

Question: What can we do after being denied a business loan for my partner’s low credit scores?

Answer: One option is to lower their ownership percentage at the secretary of state to below 20%. Some lenders won’t require them on the application or decline for derogatory trade lines if their shareholder percentage is very low. Another option is to remove them entirely as owner of the business.

Question: Should we try to fix my business partner’s credit instead of taking them off the business altogether?

Answer: Work on improving the bureau first if there is enough time. They can be lowered to 5% ownership or less and avoid being reviewed by many lenders.

How a bad credit partner negatively affects a business

Getting approved with a low credit score partner.

Options are more limited when applying for financing with a partner that has derogatory personal credit.  Lenders may decline when the ownership split goes over 20%

Some funders will not pull a bureau if the shareholder percentage is less that 20%. If the percentage is less than 5% or 10%, more lenders will not look at the information of those owners. If the business partner with a derogatory file has close to 50% interest, then chances are much higher the request will be declined. This is especially true with more traditional lenders like banks and the SBA.

Once the company has taken care of the financing needed,  the owners can consider longer term programs for derogatory history.   Should an owner with bad credit fix it or wait it out?

Getting a business location

Renting a location

Once a commercial location is found, the company owner’s credit is looked at. Landlords will pull a bureau.
Damaged credit may cause a rental request denial. Discuss this with the landlord. If the other owner has a very good file, the landlord may approve the rental request and lease the property.

Buying a location

If your company wants to finance the purchase of a location through a commercial mortgage, the lenders will also look at all the owner’s credit. The level of scrutiny will be higher than with a rental request, including full financial information.

Establishing business trade accounts

Many companies establish trade accounts.   Companies check the business and personal credit of the main owners when a trade account is applied for.   Significant negatives in the file may be a reason for denial.   Not being able to secure important trade accounts can be very damaging and cause the business to be short of the inventory, equipment and other critical needs.
Even if the business can secure the trade accounts it needs, the terms may be more expensive because of the partner with bad history. This will translate to increased costs to operate.

Obtaining Government and Private contracts

When a business bids on private or government contracts, the personal credit of the owners is reviewed. If there is a business owner with a severely damaged bureau, it will be more difficult to secure these contracts. The contract request may even be denied for this reason.

Background checks

There are many reasons why a background check for a business loan may be completed on the owners.  Some of the reasons have already been listed. If a background check is requested, it will include a bureau.  Bad trade account history on any of the owners may be a reason for denial in a background check.

If further assistance is needed, the SBA has excellent resources.

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Can a strong Co-signer make up for a bad credit primary signer?

There is a long history in credit of using a strong Co-signer to strengthen an application. However, can they make up for a bad credit primary applicant?

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What is a Co-Signer?

It is anyone that signs with you on a loan request.  It is normally done when someone with stronger and better credit than you offers to sign to help you secure financing.    A co-signer is jointly liable for what they are signing for.

In general, a strong Co-signer does not make up for a bad credit primary applicant.   If the primary applicant has a lot of derogatory information, a strong co-applicant often can’t help turn a decline into an approval.   Great credit does help in situations when the primary applicant is not strong enough, has limited credit or minor negatives on their bureau.

There are several reasons why a strong Co-signer is often not helpful when the primary signer has significant derogatory credit.

Lenders know that in most cases, Co-signers sign only to help the primary applicant get the loan.   They really don’t want to pay past due or default payments.

Examples are parents that sign for their children to help them get a car loan.   However, there are many other examples.    Sometimes another relative or friend may help them get the loan.    In these cases, the secondary signer does not get the proceeds or asset being applied for.

Due to this, if the primary applicant runs into difficulty and cannot repay, the guarantor usually does not want to pay because they received no benefit from it.    In the past, guarantors have told lenders that they just signed the paperwork to help the other person get the loan.

In some cases, the C0-signer really believes they will not be held responsible.    They believe their responsibility stopped after they signed the paperwork.

Lenders know primary applicants with bad credit will go past due often.  As a result, the excellent credit guarantor will be asked to make good on the debt.

Strong Co-signers cannot always help a derogatory credit primary applicant get approved for a loan.

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Are credit inquiries really that bad?

September 4, 2017.  Much has changed in the world of credit inquiries in the last 25 years.  Many people believe that credit inquiries are quite and they should go to lengths to avoid them.

30 Years ago,  many people did not know what credit inquires were. In 2016 a significant percentage of the population knows about credit inquiries are.  Many believe that even one or two extra inquiries are quite harmful to their credit.    Are credit inquiries though, really THAT bad?
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In terms of credit issues that may be considered “bad”, credit inquiries are probably the least worst offenders.  Credit scores recover from credit inquiries faster than just about any other personal credit item that is considered derogatory.

When Credit Inquiries begin to hurt credit

Inquiries will have a very limited affect on a credit file if the number of inquires is small.   Credit inquiries begin to hurt a credit file more significantly if the number of credit inquires is more than about 5 in one month.    When some of these inquiries are from Car Dealers or Mortgage companies, they may not affect a person’s credit score at all.  If the number of inquiries is 5 in the last 30 days, try to minimize the number of inquires in the next 30 to 60 days.

Once an individual does have more than 10-15 inquiries within a month, as long as they go a few months without almost any inquiries, their score will recover quickly.  Their credit score will likely be close to what it was within 2 to 4 months.

In summary, are credit inquiries really that bad?    In many cases, a few credit inquiries on a credit file within 30 days have a minimal impact on someone’s credit bureau score.