Reason Number One: You are Moving or Plan to Move in the Near Future

If you’re planning on moving into a new apartment, problem credit can often cause unforeseen difficulties and increased expenses. Most apartment managers now run credit reports when you fill out an application for a new apartment. This can mean that you’ll be turned down for rent in more reputable apartment complexes, leaving your options for suitable living arrangements limited at best. If you are accepted into the apartment complex, be prepared to pay a higher deposit than most renters – and you may or may not get your deposit returned at the end of the lease period, depending on the terms.

Poor credit scores can also cause difficulties with your utilities. Electric companies, gas companies and phone companies almost always check your credit history, and a poor credit score can mean deposits upwards of $200 or more. This can quickly add up to an unaffordable expense if you’re trying to move for financial or budgetary reasons. If you don’t have the cash on hand to pay the exorbitant amount charged for deposits and connection fees, you may find you can’t afford to move at all, since utilities are a large part of what makes any residence livable. And if you do manage to pay the deposits, don’t expect a refund; some companies will apply the deposit to your balance after several months of payment. Others will hold the deposit as security against your final bill. But rarely will a utility company issue a refund check for a deposit, unless you are turning off the service and have a positive balance.

Reason Number Two: You Plan to Look for a New Job

Unemployment is at an all-time high, and new jobs with decent benefits are becoming more scarce throughout the country. If you are one of the many recently unemployed due to company layoffs and closings, a poor credit score may put you at the bottom of the pile when it comes to job applicants.

More and more, employers are looking at the credit of potential employees when making hiring decisions. Poor credit may put you out of the running for a new job, even if you are highly qualified in other ways. Of particular concern, if you work in management or finance, a poor credit score may be seen as a direct reflection of how well you would manage company funds.

If your current position requires a security clearance, you may find yourself suddenly out of job if your credit scores fall too low and you are classed as a security risk.

Job seekers can give themselves an extra advantage with a clean credit history and strong credit score. Whether accurate or not, your credit history is seen as a gauge of how trustworthy, responsible, and reliable you will be in your new position. If you take the time to clean up your credit score before you start your job search, you may find more opportunities for employment.

Reason Number Three: You Plan to Buy a House/Refinance Your Mortgage

While the banks are not doling out home loans at the levels seen earlier in the year, home buying could prove an attractive option for those who could not afford home prices seen just a few months ago. With the housing markets weakening, many first-time buyers could be in for an attractive first mortgage if they have good credit scores. Interest rates are low, and with foreclosures on the rise, a couple with an average income for their area may be able to afford a larger or nicer home than they would have when the housing market was booming.

If you’re currently a homeowner and thinking of refinancing, having a good credit score can see your mortgage payments drop dramatically, saving you thousands of dollars over the life of the loan. While not everyone can qualify for refinancing, having a good credit score means that you’ll have more options than most people who are looking to downsize their mortgage payments in the long-term.

Those who have problem credit are not likely to find a home loan available for any price in the current market. With so many lending companies burned with the so-called ’sub-prime’ lending spree, the market for loans available to buyers with less than perfect credit has diminished dramatically. So even if you have the income for a new home, a poor credit history may prove to be an insurmountable barrier to the American dream.

There are many reasons to consider credit repair as a solution to your current credit score problems, but if you fall into one of the above categories, you may want to take a closer look at procuring credit repair sooner, rather than later. With the amount of money you save in reduced deposits, increased job security, and lower interest rates, the amount you spend on credit repair services will be a drop in the bucket, comparatively.

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Scenario 1: Refinancing High-Interest Credit Card Debt Using Home Equity

This scenario has been commonly used by many companies claiming that they can lower your credit card debt. By taking out a second mortgage using home equity, a person can pay off high interest credit card debt with the funds received. There are several problems with this scenario:

You must have equity in your home to qualify. This means that for new homeowners, this type of financing option is unavailable. However, in the current market, this is actually a good thing and here’s why:

Financing credit card debt through a mortgage trades an unsecured debt for a secured debt. This means that when you use the mortgage money to pay off credit cards, you’ve essentially tied your homeownership into your ability to pay off the debt. If for some reason you default on the second mortgage, you can lose your house. While credit card debt and late payments may be damaging to your credit, they are unsecured. The credit card company can’t take away your purchases made with the card, but the bank can and will take away your home if you default on a mortgage.

The last problem with this type of scenario is that it is not foolproof – if you decide to use your credit cards again for purchases, then your debt problem doubles. Many times, people who try to eliminate credit card debt end up with more credit worries as they have to make payments on two mortgages and the new credit card charges.

Scenario 2: Consolidating Student Loans

If you are making payments on multiple student loans, consolidating those loans can seem like a smart idea. In some cases it is, however, if you are still in school there are better options available.

• Forbearance – if you are unable to make payments, you may qualify for forbearance. There are several types of forbearance, including one that applies if you are not making enough money to meet all of your financial obligations.
• Deferment – this is usually the best option if you are still in school. Even if you are only taking classes half time, you can get a deferment on student loan payments. Just be sure to have your school verify that you are attending, and continue to take enough courses to qualify for in-school deferment.

Once you consolidate your current student loans, you cannot reconsolidate at a later time. Therefore, if there is a chance you will be taking out further student loans, your best bet is to use forbearance or deferment options, and only pay the interest on the loans until you are able to meet the financial obligation.

If you are in debt and are looking for ways to repair your credit, you should explore every possible option, not just debt consolidation. Credit repair companies, or financial assistance through other means may be a better option in the long run for repairing and preserving your credit score.

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