By: Laura M. Sands
Even with Late Payments, There is a Way to Salvage a Good Credit Score
In this economic climate, it is not unusual for people to experience having to make late payments as they fall deeper into debt. For many, this is due to a job loss or some other setback. Before allowing credit to be ruined, however, requesting a goodwill adjustment from creditors may help.
What is a Goodwill Adjustment?
When payments are offered late or when a person fails to make a payment at all, this has an adverse effect on their credit score. Damage to one's credit rating may be avoided, however, by communicating with creditors. By offering an explanation of one's circumstances, some people have successfully requested a ”re-aging” of their account. This means that a creditor will show mercy to an individual because of their situation and report payments as current instead of late. Such is known as a ”goodwill adjustment”.
Perseverance and Patience is Required
Requesting a goodwill adjustment can be an arduous task. Often, the first representative encountered by phone at a creditor's office is not authorized to grant one. Some may even respond to consumers by claiming that a goodwill adjustment doesn't exist. However, if a person is willing to make several phone calls and politely request to speak with a supervisor or two, an adjustment may eventually be made to their account.
Favors are Never Guaranteed
Even when politely asking for a goodwill adjustment, it should be noted that such is granted solely at the discretion of the creditor. In other words, just asking for one does not guarantee that it will be given. Even if a person's situation is one that the individual representative on the other end of the phone expresses sympathy for, some creditors have a hard policy not to extend such favors. The reasons for this may vary, but often it is because the revenue collected from late payments is a significant source of income for the company that they are simply unwilling to sacrifice.
Good Faith Payments
Before a goodwill adjustment is granted, many creditors will require that a series of payments are made on time first. Usually, this is only for a few short months, but it is a sort of trial period to test a person's intentions about repayment. Sometimes this amount is reduced to make the payments affordable, but often they are not. Either way, when good faith payments are required, they must be made on time each month before a creditor will approve a goodwill adjustment.
Federal Guidelines and Restrictions
When requesting a goodwill adjustment, consumers should be aware that the federal government only allows banks and creditors to re-age an individual's account one time within a twelve-month period. Also, creditors cannot grant an adjustment more than twice in a five-year period. Therefore, it is best for consumers to only request an adjustment when absolutely necessary, as this favor is not likely to be granted at any other time in the near future.
Diligently Scrutinize Future Credit Reports
Because late payments are so damaging to one's credit score, a person should always be aware of what is reported to credit bureaus. This is particularly true after a goodwill adjustment has been granted. Therefore, it is a good idea to ask for a copy of any paperwork that is sent from a creditor to the credit bureaus and to keep a file on such correspondence. This is to ensure that, if a goodwill adjustment is not correctly noted on one's credit report, proof of its granting is readily available when requesting that a correction be made.
Good Credit Means Being Responsible
In order to maintain a good credit score, one must maintain a realistic budget, control spending and pay all debts on time. While it is best to never be late on a loan or credit card payment, it is good to know that a goodwill adjustment may be requested in an attempt to preserve a good credit rating. The primary lesson here, however, is to be responsi
ble enough about handling finances to know when trouble is on the horizon and to have the courage to ask for help when it is needed.