Knowing the Rules of the Game® :

Demystifying Credit

By Rebecca Steele

Consumer preferences and the rapid pace of financial service innovation are helping expand borrowing options faster than ever before, which can help lead to greater financial inclusion and an improved economy. The upsides to having more access to loans and lines of credit are clear, but there are some who may find themselves over leveraged and in need of guidance as they navigate the waters of the credit pool. As mentioned in the “Know the Rules of the Game” podcast, the credit pool does have a lifeguard and it’s a good idea to get to know them before a crisis. It is equally important to know when to reach out for help and what to expect.

"ONE RECENT LATE PAYMENT ON YOUR CREDIT REPORT COULD CAUSE A CREDIT SCORE TO DROP AS MUCH AS 180 POINTS."

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Where to Turn

That brings us to the challenge of finding the right resource for guidance and solutions. It’s not often clear which way to turn for confidential, objective and comprehensive financial guidance. While some experts wrongfully advise people to avoid communicating with their creditors in order to influence negotiating power for a settlement, it is better to operate in the open and share relevant information about your circumstances and your intentions. Creditors are more likely to work with you to find a way to overcome financial setbacks. It is also true that creditors recognize and understand the role of nonprofit credit counseling agencies who are members of the National Foundation for Credit Counseling (NFCC). These trusted organizations serve all who could benefit from professional financial advice as they seek to improve financial wellbeing, even during a personal financial crisis.

NONPROFIT COUNSELING IS ASSOCIATED WITH A LARGE REDUCTION IN REVOLVING DEBT

When it comes to managing your finances, the challenge of keeping credit and loan payments on track can change from year to year or month to month. We also know that too many Americans are woefully unprepared to face financial emergencies due to a lack of sufficient savings, which places them at an elevated risk when it comes to balancing their financial obligations. The coronavirus pandemic has left many households in a place where savings is nonexistent because of extended job loss or salary cutbacks. Without savings, a temporary problem with a monthly payment can become a long-term issue.

Warning Signs of Financial Stress

According to FICO, one recent late payment on your credit report could cause a credit score to drop as much as 180 points. That missed payment ratchets up the pressure on an already strained budget, which could create a ripple effect leading to problems with other key priorities such as a mortgage or auto loan. Catching the early warning signs can help prevent things from getting out of control. Lack of savings or the ability to regularly contribute to savings is a clear warning sign that help is needed to avoid a financial crisis. Once payments start falling behind, there is no more time to waste before reaching for that lifeline.

An ongoing study conducted by researchers from The Ohio State University reveals that nonprofit counseling is associated with a large reduction in revolving debt, which includes credit card debt. This helps clear the way for financially distressed individuals to recover from their financial setback and achieve long-term objectives such as home ownership.

If you are an individual who is struggling with repayment of your credit obligations or if you are a lender/underwriter/financial advisor working with someone in that situation, consider the short and long-term value of nonprofit credit counseling provided by the NFCC network of counselors. To find out more or to connect with a counselor, visit NFCC.org or call 800-3882227.

Rebecca Steele

President & CEO National Foundation for Credit Counseling (NFCC)