Credit Repair Not As Easy As Before: The Follow-Me-Down Phenomenon

This is a guest post from Frank Collins.

Consumers who are focused on eliminating debts with the hope of repairing credit, raising their credit scores, and solidifying their credit history may find that in current times it’s not as easy to get back on track as it used to be.

Typically, a consumer looking to repair their credit will put cash towards zeroing out their credit card balances. After a card has been paid in full and the account is reported as such to the credit bureaus, the consumer would then expect their credit score to increase. However, what many are finding to be true is not what they expected.

Follow-Me-Down

Since the credit industry was rocked and the recession took hold, lenders are not as free with credit as they once were. Banks and credit card companies can not afford to risk any more consumer defaults and are therefore much more selective about who is getting credit.

Because of the shakeup in the credit industry, many consumers are going through what is being called the ‘follow me down’ phenomenon. This is what happens when consumers try to fix their credit by paying down their credit card balances and the credit card company reacts by lowering the credit limit on the credit card account. Technically since the cardholder paid down the debt, their credit score should increase. However, the decrease in spending limit causes a consumer’s credit score to drop. Efforts to repair credit by satisfying a balance due aren’t doing much to help a consumers’ credit score.

So what can consumer do about the follow-me-down phenomenon? Here are some tips for avoiding the follow-me-down trend incredit repair:

The most obvious way to avoid any issue with credit and credit cards is to pay your balance in full each month in a timely manner. Set up automatic payments to help keep you on track with timely payments.

Stop Spending

If you can’t make full balance payments to your credit card, you need to stop spending. Make sure you only spend on credit what you have in the bank to back up in cash. Credit cards are not an extension of your income and should not be used as such. The only way to get ahead is to stop getting behind.

Don’t’ Max Out

If you spend excessive amounts of money on your credit cards, your credit card company may take action. Consistently maxing out your credit cards will raise red flags with your creditor and can signal potential account default. The creditor may choose to raise the APR or cut spending limits significantly.

Make Contact With Creditor

If you are attempting to pay off owed debts in an effort to repair your credit, consider contacting your credit card provider first to discuss the situation. Even if the balance is past due, you can still have some power of negotiation to make sure you get what you want. Contact a manager at the credit card company and let them know you want to settle your debts without getting a decrease in your spending limits. No all providers will be willing to help but when faced with the option of not getting paid at all, most credit card companies will be willing to work with you.  

Credit Repair is Necessary

With the credit and economy still in trouble, now is the time to put the effort forward to repair your credit history and score. Start by ordering a copy of all three credit reports from the major credit reporting bureaus Experian, Equifax, and TransUnion. Every consumer has the right to a free credit report once a year and at any time they have been denied credit. Review the reports and be sure to document and dispute any inaccurate information.

With a good credit history or a solid credit score, consumers will find it much more difficult to get a line of credit, a personal loan, or a mortgage. Consumers will also be paying the prime rates for insurance premiums and potentially may lose out on employment opportunities. Bad credit can last for years but it doesn’t take long to start back on the road to good credit.

Credit repair is something any consumer can do on their own with time and effort. While there are many agencies that offer services to help repair bad credit, most cost money consumers just don’t have to spend. There are no miracles to better credit. Consumers need to set both short and long-term goals to achieve better credit scores and use money management tools to stay on financial track.

Frank Collins is a personal finance professional writer with over three years of experience writing for popular online publications. Feel free to check out his new blog at creditrepair.org