Handling Credit and Credit Score Problems
Credit has become an almost indispensable tool in our society. Almost everyone uses some form of credit whether it is in the form of credit cards, car loans or mortgages. Credit allows us to purchase goods and services by paying for them later which can be very convenient to buy big ticket items or stretch our monthly budget. But credit can cause money problems if not managed wisely.
Money problems are often the immediate result of too much debt with unmanageable monthly payments. But money problems can also be compounded because of credit issues as result of unmanageable debt payments. The debt payment burden can be enough to worry about and try to manage but future money problems are sure to come as a result of a declining credit score and deteriorating credit history.
The first approach to help curtail future credit problems is to understand you have a credit and debt predicament. As simple as this sounds, far too many consumers ignore the warning signs and don’t handle their credit problems in their infancy but rather wait until the burden of bad credit and delinquent payments devastate their lives and relationships.
Some of the early warning signs of credit problems include:
You pay only the lowest amount due each month on your credit cards or other revolving credit lines.
You use your savings to pay bills.
You often get past due notices that include late fees.
You pay bills after the due date or skip payments.
You take out new loans or charge on credit cards to pay for basic living expenses.
You often use more debt to cover expenses or pay bills.
Collection agencies frequently call regarding past due obligations.
You are turned down for credit because of a poor credit history and low credit score.
The best advice to avoid the path of too much debt and a deteriorating credit report is to know in advance how much you can afford to commit to monthly credit payments. Monthly credit payments should not consume more than 15% of an individual or family income excluding the housing payment. Once debt payments pass this threshold, it is time to assess how severe your credit and debt issues have become and start a remedial course of action.
Before you approach monthly debt payments that are too hard to handle, credit should be limited to use for necessary purchases where the use of credit might have added attributes or for the purchase of assets. For example, credit can be used for purchase with a credit card where the protection afforded by a credit card service can be valuable or credit could be used for the purchase of an asset like a home. Credit for everyday consumption and shopping will always lay the ground work for future debt problems and credit score problems.
Once the debt amount and monthly payments grow out of control, getting out of that debt becomes harder and harder. With a plan of action and some discipline almost any debt problem and credit score can be fixed. The days of a debtor prison no longer exist. A good budget with some curtailed spending is the number one tool to getting debt under control and starting a path of a good credit score. But other options are available such as bankruptcy, debt consolidation loans and credit counseling.
The goal should be to understand the problem including the amount of debt, your income and expense position and set up a plan that can work for you. Begin by making a budget. Determine what you owe and what your monthly expenses are. This will help determine whether a good budget and a thrifty lifestyle can remedy the problem or more drastic action needs to be taken.
If the budget process is not enough, calculate out how much you can realistically afford to pay each creditor and approach the creditors to see if they will accept a lower amount or reduce the interest rate on the debts.
A debt consolidation may be another alternative. Be careful not to obtain a debt consolidation that only places you in a worse financial position. A debt consolidation loan used to pay off credit cards and other loans may be a possible solution but it may cost more in the long run.
The possibility of bankruptcy either with a Chapter 13 repayment plan or Chapter 7 should not be ignored when the debt levels are quite high. This decision should not be taken lightly but the stigma of bankruptcy really no longer exists so this option should also not be ignored.
Credit counseling is another option to consider. A good non profit credit counseling company can help work with your creditors to reduce the interest rates and possibly the amount owed and make a plan to get out of debt.
The two important considerations are to avoid using debt for transactions they should not involve the extension of credit and once credit trouble starts, nip it in the bud early no matter what method is used. No matter where you stand now, a good credit history and good credit score should be a goal to improve your lifestyle.
Repairing bad credit and a bad credit score is easier than most consumers believe. Disputing inaccuracies frequently removes more than just the inaccuracy, which often leads to an improved credit score. Secured credit cards and prepaid credit cards are quick and easy tools that can be used to rebuild credit. Prepaid credit cards generally do not require a credit report check and the credit card payment history will be reported to the credit reporting agencies to build a history and improve your credit score.
Fixing a bad credit score and high debt payments may not be easy but it is easier than those confronted with this condition often believe. Ignoring the problem will certainly not help; get debt help and credit score help now to start a path for a better lifestyle.
Bad Credit Options
Once your credit score is turned truly terrible and new credit appears to be unlikely, there are a variety of options to consider. First, don’t ever let bad credit get you down. There are millions of consumers who are having the same financial difficulties and struggling to review what options are left. There is always hope for someone who has a bad credit and bad credit score.
Regardless of how bad a credit or debt situation maybe, there are always some actions that can be taken. Actions that can increase your credit score or actions that can be taken to simply handle your debt payment problems.
The two biggest issues that generally face individuals with really bad credit is the inability to make certain purchases or procure services that require a good credit score and a good credit report. The second problem is that the individuals that have bad credit reports are often struggling to make their monthly payments.
The first key to improvement is to stop ignoring the financial position you are in. If you have bad credit, you already know how difficult it is to get the things you want as well as how hard is to meet your existing obligations. By addressing the problem and starting to fix the situation now, you are ensuring yourself a better future. It may take a little a time and sacrifice but for most people, anything is better than where they are now.
Whether you need to rebuild a damaged credit history or simply continue strengthening your rating, there are some simple things you can do to get closer to your goal. Here are the key elements to start down a path of better credit, a better budget and a better way of life.
First, fix your budget shortfalls. Analyze if there is problem with mismatched spending and income levels. Now, that sure is easy to say. But what do you do if your credit is ruined and your monthly expenses are killing you. The two options are to increase your monthly income or reduce your monthly expenses. For those individuals that have not reduced their expenses by buying less, shame on you. Cut back, cut back and then cut back some more. For most people extreme budgeting is biggest factor on the road to a better credit score and better living. The credit score is not that important but most of us can do without eating at McDonalds or going to the department for quite some time and in the end those changes will make life far easier.
If your expenses can not be reduced and the monthly debt payments are just too much, the next option to consider is a fresh start with a bankruptcy filing. Filing bankruptcy is a serious step to credit repair but when debts are overwhelming in may just be time to consult an attorney and see if this is the right option. Bankruptcy is a necessary evil and should not be frowned upon. Sorry for repetition, bankruptcy should not be frowned upon, file with a smile. You only have so many years on this planet, there is no reason to endure prolonged discomfort because of bills that are often the result of our lending industry over selling debt loads to you and millions of other Americans.
The next step is start immediately reestablishing new credit. This can be done in a number of ways such as secure credit cards, credit accounts that you may still have that available for use and new accounts at department stores. Even if the cost of the credit is moderately high, you do not have to keep a large balance on these accounts. Simply use the accounts to establish a good payment record so your credit going forward looks good and your credit score can be evaluated based on at least some timely credit payments.
Now its time to consider repairing your credit. This task involves making any payments you can on delinquent accounts. Use your judgment on which ones to address and which ones to tell go fish. After that, start disputing and correcting any errors in your credit report no matter how trivial the error is. The key is to dispute the error and hope the creditor does not respond to the credit reporting agency in time and the credit account is removed from your credit report.
We all know that good credit is important for a good financial future but equally important is living a good life that is free of guilt and concern about how to make your monthly payments.
Increase Your Credit Score While Removing Delinquent Credit
Generally the biggest component of credit repair and improving a credit score is eliminating the delinquent credit accounts from your credit report. Removing delinquent credit accounts requires written disputes to the credit reporting agency and entails patience, good execution and time. While this process is taking place, it is prudent to work on the rest of the credit report and credit accounts to improve the credit score.
Two approaches that can help measurably with the credit report and credit score while fixing delinquent items is to add positive data and keep all other accounts current and active.
While you working on removing the bad credit it is very helpful to improve the credit score. This means you don’t want to let your credit report remain inactive. The faster you begin to re-establish more credit and good credit the faster you’ll improve your credit score.
Keeping up with the current monthly payments for accounts that are in the credit report is the first step to help control a bad credit score. Even when most credit accounts are delinquent or charged off it is important to pay the current bills on time while cleaning up delinquent accounts and adding new credit. This action will at least prevent the credit score from deteriorating further and help it steadily rise.
One of the best places to start to build a solid credit history is to obtain a secured credit card. A secured credit card can offer those individuals with poor credit or even no credit the opportunity to obtain credit and reestablish a payment history that will ultimately improve the credit score.
How quickly someone can improve their credit score from past problems will be greatly dependent upon what actions are taken immediately. The longer late payments are made, the longer the credit score will remain low and if new credit is added sooner the faster the score can start to improve.
Quite frankly, as damaging as previous severe delinquency is in a credit report, the scoring models are more dependent on recent credit activity than past activity. Using credit now and making timely payments while adding new credit accounts is a great way to improve a credit score.
A good starting point for adding credit is the secured credit card or a credit card offered by credit card companies for people who have less than perfect credit. Recommended sites include: www.bestcreditcardrates.com and www.lowestcreditcardrates.com.
Credit Repair Scams
When a person falls behind on their debt, things can be overwhelming. They may be laden down with harassing calls from debt collectors. Or worse, they might even have to go to court because a creditor, fed up with not getting their money, decided to take legal action. A person’s difficulties with debt are even more exacerbated if they are trying to buy or rent a house because of their bad credit report and credit scores. For all of these reasons many will be tempted to turn to credit repair companies. However, this may not be a wise choice.
When consumers have problems with credit, excessive debt and a bad credit profile or credit report there are a number of techniques that can be used to help the situation. Some of the solutions involve credit counseling, debt consolidation and credit repair. These are not the same processes. Credit repair companies generally engage in the sole process of removing bad credit in someone’s credit report and more often than not they either do not accomplish the job and / or charge exorbitant fees to do this. These services are generally very ineffectual and costly and are designed to take advantage of consumers in financial trouble.
The biggest issue with credit repair companies is that if they do ‘fix’ one’s credit they are using means that a person could do themselves for free. This involves sending dispute letters, something that is easy to do. A basic dispute letter will inform a creditor that they must provide documentation proving a person owes money to them. They must also correct any errors that are listed in the letter. If the creditor fails to do either of these things, it is possible that a person can get any debt associated with them erased.
This process is without question time consuming and has to be performed in a fairly precise manner to make sure the debts is identified properly, the letter is sent according to the standards established by the Fair Credit Reporting Act and that the proper follow up is completed. The amount of work involved may warrant the need for a assistance or may not, the problem with most all credit repair companies is that there fees are excessive and there results are generally underwhelming.
So, if sending dispute letters is so easy, why do people still go to credit repair companies? It’s usually because they believe the credit repair company has access to means that they don’t have access to. This is just not true. Even credit repair companies that are legal are limited to just sending out dispute letters. Consumers can do this themselves, even if they don’t know how to write one. This is because numerous sample dispute letters are available all over the Internet.
Some credit repair companies also use a scam technique known as file segregation to try to ‘fix’ the credit of their customers. The process of file segregation begins with the credit repair company asking the customer to get an employee identification number, (known as EIN). This is a form of identification that works like a Social Security number; it is often assigned to employees. Anyway, once an EIN has been obtained, the customer uses it to establish a new credit identity. Different contact information is used to make it harder for creditors to track the customer down.
The problem with trying to fix credit in this manner is that it is considered fraudulent. An individual cannot establish a new identity with the intent to escape debt associated with a previous identity. And though having an EIN is perfectly legal, things appear fraudulent because of the way different addresses are used. When the government notices what is going on, it is possible that individuals associated with the scam, (who are actually the victims), get criminally prosecuted. The credit repair companies may also get in trouble, but who cares what happens to them.
All in all, the process of credit repair is one that may take time and requires attention to detail. However, some debtors will be either lucky enough or have the right information and may actually get some of their credit expunged through the process of sending dispute letters. But the likelihood of getting all of one’s debt eliminated through an expensive credit repair company is unlikely. The one real solution is being patient, work on the debts yourself, pay back bills over time, consider debt consolidation or even bankruptcy if the bills are more than what one can handle and do your own research to solve the problem. The tools to fix your credit and debt problems are easily available to you.
Understand Your Rights with Credit Repair Companies
If your finances are spinning out of control it may make sense to get some help. The first task is always to help yourself. Stop and assess your debts and credit history and work on a new path of debt management and credit repair on your own. No matter how difficult credit and debt problem may become, the first step is stop and evaluate what the problems are. Look over your budget, review your bills and review your credit report. Read about all the tools and techniques to reduce debt payments and clear up previous bad credit your self. When this is too overwhelming, outside help maybe needed.
Reputable credit counselors can offer advice to help improve your money management skills, manage the debt you have amassed and develop a budget you can live on. They are certified counselors and will take the time to develop a plan that is customized to your situation. They help you take the steps you need to make to get your finances back in shape.
Credit repair organizations are not federally regulated and less than half of all states have any local regulations. Scams and fraud are out there. It is important to remember that while this organization can help you climb out of debt, they are in it to make money or cover their costs depending how the program – paid for by the fees you pay them to help you. Obviously if you are already in debt, this will increase your expenses.
If you are on the brink of bankruptcy this may be your only course of action. As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. So if you are looking for a credit repair organization, be sure you are very careful in making that selection. You can find a state-by-state list of government-approved organizations on the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.
By law, credit repair organizations must give you a copy of the Consumer Credit File Rights Under State and Federal Law before you sign a contract. This is document with a lot of small print but the law contains specific protections for you. Credit repair companies cannot:
Make false claims about their services. Face facts, you will not get out of the trouble you are in overnight no matter what they promise.
Charge you until they have completed the promised services. Beware of any upfront fee that sounds questionable.
Do anything for you until they have your signature on a written contract and a three-day waiting period has expired. During this time, you can cancel the contract without paying any fees.
Be sure you get a written contract that spells out your rights and obligations, and read it carefully. Look for:
The payment terms for services, including their total cost spelled out clearly.
The description of the services to be performed should be detailed.
The contract must specify how long it will take to achieve the results they expect to get for you.
The contract must spell out any guarantees they offer.
The company’s name and business address – there are a lot of internet-based companies that may only collect a fee and disappear.
Sample Credit Scores
Credit histories, credit reports and credit scores are key component of every individual’s financial health whether we like it or not. Unfortunately, too many consumers don’t know what the numbers of credit score mean for them. Have you ever obtained your credit report and credit score or been told about this number before and didn’t know what it means? The formula behind credit scores is a bit of a secret and credit reporting agencies can each assign you a different score. The good news is that credit scores have a range and if you understand what the ranges mean you can effectively evaluate your score.
Depending on who you read or which credit score you read, scores may go as high as 900 and as low as the 300s. A range of lenders use credit scores to facilitate lending decisions and every one of these lenders has their own guidelines for making loans and providing credit based on the borrower’s credit scores and other attributes used to make the credit decisions. There is no single credit score applied by all lenders that’s determined loan and credit approvals as well as the interest rates for the use of the credit.
With the recent tightening of credit, some report that what was rated as “good” may have changed a bit. What hasn’t changed is the higher your number the better. Here is what most sources that create the credit score models say about the ranges:
800-850 or more
This may be considered perfect credit. One caveat. If you have this number and no supporting credit history it is a meaningless score. People with a score in this range and a long history will get the best interest rates on everything. We all should strive for this.
720-799
Excellent credit. Most likely you get pretty much the same rates as those above this range. No worries here.
680-719
This is good but not perfect. Think of this as a being a “B” student. It makes sense to work a bit harder and get it into the ‘A” range. You will get approved for loans and credit cards but will you will pay slightly higher rates than those with excellent credit and you may be charged slightly higher premiums for auto insurance.
620-679
Good or okay credit. Scores in this range are fairly common so you should not despair. However, you may be getting charged more for credit and that is money you do not have to spend if you get your financial house in order. Even with good credit it always worth the effort to strive for perfect credit or a better credits score. The higher score, the more credit opportunities that will be available and the better the borrowing terms such as larger loan amounts.
580-619
No one likes to be “below average” and scores in this range are below average and may be teetering down a path to bad credit. People with these scores are considered “sub prime” and given the news of late, you know that is not good. In a tight credit market, if you have a score in this range you will have trouble securing financing and if you do the terms will not be good. Obtaining credit will not blocked but interest rates will be higher and credit conditions will be more restrictive. No question: get moving and improve your score.
500-579
Folks with a score in this range need to improve their credit and engage some form of credit repair. Most likely an account went to collection, became a charge-off, a mortgage went into foreclosure or bankruptcy was filed. Credit scores that fall this low will often have generally have a significant negative event such as a mortgage foreclosure or bankruptcy that involved numerous accounts or numerous accounts that have payment delinquencies. This is an indication of credit mistakes that can impact your financial life for years.
Below 500
There is no good news here. People with a score below 500 must make serious changes to pull themselves out of the financial situation they are in. In these situations, the credit score is usually impacted by both a significant negative event such as bankruptcy or foreclosure as well as having the vast majority of credit accounts paid past due.
The key to good credit begins with paying your bills on time and living within your means. It really is that simple.
What is the Meaning of Credit
Credit is an instrument in which you are using someone else’s money to pay for things. Credit means having the resources and ability to go into debt so that you can buy now and pay later. Credit also means you are making a promise to repay the money or loans to the person or company that loaned you the money. You borrow money from a bank or other lender or creditor, and agree to pay it back over a period of time. No matter what method or type of credit you use to pay for the item whether it using a credit card, a car loan, a home mortgagee it is all credit for you to use. And you are required pay that money back, usually with interest, for the convenience of borrowing those funds.
Credit provides a lot of advantages and conveniences. Unfortunately credit isn’t free and there are the costs that may include interest rates, finance charges, and annual fees. A loan usually includes both principal, the amount of money borrowed, and interest which is the charge or cost for the use of the money. A loan or credit agreement spells out the terms for repayment of the loan or money borrowed and will include the cost and interest charges as well conditions regarding failure to make timely payments.
Today, banks and other lenders make it simple to use credit to buy just about anything. With so much access to credit, getting and abusing it can be easy. How much credit you have available will depend on your ability to be responsible with your debts and repay your creditors within the time frame established. The more responsible you are, the more credit you will have in the future. Because of that, it is important for you to build a strong credit history and work at keeping it that way.
Unfortunately credit can have potentially costly pitfalls and if you don’t use it wisely it gets to be really expensive. Establishing and maintaining good credit is the key to ensuring strong long-term financial health. Good credit means that you make your loan payments on time and you repay your debts as promised. When you have a good credit record, lenders feel more confident that you will be willing and able to pay back the new loan.
Good credit is important because it makes it more likely that you can a new loan in the future when you want to make a major purchase, such as a car or a home. It is important to think of credit as a tool that will help you in the long run, not just the short-term.
Credit is a valuable resource if it is used in a responsible and limited manner. In fact, it can be a very helpful financial tool that will help you when making important financial decisions and investments in your life. Credit can help you to purchase a house or a car. It can help you have revolving funds to help pay for emergency or frivolous expenses. It can also help you establish a financial status that will be a benefit when you really need it to be.
Your credit history affects your credit and your financial future. Your credit history is an ongoing record of much of your financial life. Your credit history tracks the debt you have incurred with creditors including banks, stores, student loans, mortgages, car loans, and also includes things like your employment history and past addresses. Creditors look at your financial history using your credit report to determine how much money they are willing to lend you, and at what interest rate and terms.
Credit isn’t just about getting a loan. Credit is confirmation of an individual’s financial responsibility. It is an indication of how trustworthy you will be with someone else’s money. It is also one of just a few things that will either make your life really good or really bad. If you want to have financial power and trustworthiness that is manifested through a good credit score and long, positive credit history, you need to be wise in your financial decisions.
Credit history is being used for a variety of issues today. When someone wants to rent an apartment their credit will most likely be reviewed or checked. Employers are starting to use the process of credit checks for employee candidates. Insurance agencies check credit to evaluate the risk of customers not making the monthly payments. Of course, credit histories and credit reports are used for credit card approvals, home loans, car loans and many more conduits for borrowing money.
Credit eventually is broken down to a simple measure of financial responsibility. It is an indication of how dependable individuals will be with someone else’s money. It is also one of just a few things that will either make your life a little easier or possibly hinder financial security. For those consumers who don’t have good credit right now, they don’t have to be discouraged. Bad credit can be fixed. Fortunately, even if you’ve made some unhealthy financial decisions in the past, there are many things you can do to improve your credit. It may take some time, but you will be far better off if you start to improve your credit sooner rather than later.
So You Screwed Up, How Long Does Negative Information Stay On Your Report?
This may remind you of your school records in elementary or high school when your history seemed t be passed along from teacher to teacher. Negative information stays in your credit report for years and there is little you can do about it. Like a reputation, good credit is fragile.
The key to derogatory credit accounts or negative information is how quickly it can be removed from your credit report. Depending on the type of bad credit account and what happened with it, negative information will stick around on your credit report for seven to as many as fifteen years. Even credit inquiries stay on your record for two years. In general, negative information that is more than 7 years old from date of last activity on the account, 10 years for bankruptcies, must be removed from your credit file. Credit accounts that are paid as agreed generally remain on your credit file for up to 10 years from the date of last activity.
Derogatory credit accounts remain in credit histories beyond the required time frame mostly because the credit reporting company is merely a repository and that the negative information in your credit report does not come directly from the credit reporting agency. The negative information is reported to the credit reporting company by others that have granted the credit or may be included in public record information or reported by collection agencies. This is one of the primary reasons why checking your credit to make sure the inaccurate or outdated derogatory credit is removed.
The following information pertains to more specific credit report information for delinquent accounts or derogatory credit items in a credit report.
The common rule for delinquent accounts is that late payment histories generally remain on your credit file for 7 years. These delinquent accounts that have not paid as agreed will remain on your credit file for 7 years from the date the account first became past due leading to the current not paid status.
Collection accounts follow the same rule and will generally remain on your credit file for seven years from the date the account first became past due that led to the account becoming placed with a collection agency.
For a bankruptcy that is file as a Chapter 13, a discharged chapter 13 bankruptcy generally remains on your credit file for 7 years from the date filed.
For a bankruptcy that is a Chapter 7, Chapter 11, or a non-discharged or dismissed Chapter 13 bankruptcy, the record will remain in the credit report for 10 years from the filing date.
Charged-off credit accounts will remain for 7 years from the date of original delinquency.
Unpaid bills sent to collection will also remain for 7 years from date of original delinquency.
Judgments are on a credit report for 7 years from date it was reported or until the statute of limitations runs out, whichever is longer. The amount of time the judgment remains on in a credit history will be the same whether the judgment is satisfied (paid) or not.
Paid tax liens are in a credit history for 7 years from date paid they are paid or released.
Unpaid tax lien can remain for up to 15 years.
There is no time limit on reporting information about criminal convictions or information reported in response to your application for a job that pays more than $75,000 a year or and information reported because of an application for more than $150,000 worth of credit or life insurance.
The rules for collection account are that they are to be removed after 7 years from the time it became a collection account. Once a consumer pays off the debt in collection or a charged off account, it cannot stay on your report past 7 years. It will be indicated as paid on the credit report. If the account is not paid in full but has partial payments or periodic payments, collection agencies my try to keep the account active and reset the 7 year clock. Consumes have your rights to write to the collection agency and credit reporting agency and ask that they remove the collection account or charged off account by the original date.
The three main credit reporting agencies collect and report information in roughly the same manner but are different identities that do not operate identically. For consumers who do have negative information in their report it is a good idea to perform a credit check and either obtain credit reports from all three of the national credit reporting agencies or obtain a merged report so you can see if one agency’s reporting methods is lowering your overall credit score.