Jun 25, 2010

Dealing with Charge-offs: When is it too Late to Pay?


Scenario 1: Brenda has gotten behind on some of her bills, including a medical bill that she hasn’t been able to bring current for a few months. The doctor’s office has written off the debt, but when Brenda gets her tax refund she catches up on all of her bills, including the medical bill. She continues to make payments in a timely fashion going forward. Brenda sees her credit scores start to improve after a few months of payments, and is back on track.

Scenario 2: Stacy has fallen behind on some of her bills over the years, including some charge-offs. She gets a raise at her job, and starts paying off all of her bills, starting with the oldest ones first. Stacy is dismayed to find out that her credit scores have dropped significantly, despite the new ‘paid’ status on all of her old, previously-unpaid accounts. She is unable to open any new credit accounts, and despite having paid down her debts, she finds that her credit scores remain low for some time.

Both Brenda and Stacy paid their debts, so why did Brenda’s credit scores improve while Stacy’s got worse? The simple answer is: Time. Brenda’s debts were only a few months past-due, while Stacy’s debt was years past due. Because new negative information harms your credit scores, paying off a lot of old charge-offs can initially put your credit scores into a tailspin. Even though Brenda’s medical bill was written off after a few months, the relative newness of the negative information had already done its damage to her scores. Stacy’s old charge-offs, however, were impacting her credit scores much less before they were paid in full.

How late is too late to pay down a debt? Generally speaking, the closer a debt is to being dropped from your credit report, the less likely it is to help you if you pay it off now. That doesn’t mean you shouldn’t pay off the debt – but you may want to wait until the item has dropped from your credit report if you want to avoid damaging your credit scores. In general, any revolving debt that is a few months past due should be taken care of first. Open accounts take precedence over your old charge-offs.

If you do decide to pay on a charged-off account, make sure that you only pay the original creditor. While debt collectors may be the ones contacting you about the debt, not all debt collection agencies are reputable. If you pay off the original creditor, there is less chance that your good-faith payment will be mishandled. In some instances, very old debt may have been bought and sold by multiple debt collectors – paying the original creditor ensures that you have a verifiable means of proving that the debt has been satisfied.

Charge-offs can be tricky business. No one wants to leave a debt unpaid, but if a credit item is about to be removed from your credit report, it may be best to wait before you pay. If you do decide to pay sooner, contact the creditor directly and let them know that you’d like to work out an arrangement that will help minimize the impact to your credit scores. Make sure you check on your credit report again after the payment has cleared to be sure that it accurately reflects the status of the debt. The worst thing you can do is pay off a bill and have the payment go unreported, so always be vigilant and check your report regularly.

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Apr 3, 2010

Fixing Your Credit: Three Damaging Items to Have on Your Credit Report

There’s no tried-and-true scientific method to determine your credit score based on the information in your credit file, but there are several things that universally have a negative impact on your credit score. Any one of these items could cost you in terms of higher interest rates, greater fees, or declined credit applications. If you have several problems and don’t know where to begin, consider these three items first:

1. Charge-offs

While at first glance charge-offs may look like you no longer owe creditor, in reality the creditor has deemed your debt to be a “lost cause” and has written off the debt or sold it to a debt collector. Typically, this only happens after several missed payments — anywhere from 3 to 6 months of nonpayment could land you with charge-off on your credit report.

Charge-offs are particularly damaging because they indicate that you are either unable or unwilling to pay off a debt, and are unwilling to work with creditors to find suitable payment arrangements. If your debt is sold to a debt collector, they too may place a negative item on your credit report, resulting in two negatives for one unpaid bill.

2. Maxed Out Credit Limits

Even if you pay your bills on time and avoid charge-offs and debt collectors, maxing out your credit cards will make it difficult for you to obtain new credit in the future. Having a high debt-to-available-credit ratio can take several points off of your credit score. Additionally, many lenders hesitate to extend credit to someone who is already maxed out, even if you are current with all of your bills.

If your cards are at their limit or close to it, work on paying down the balance. You should carry a balance of less than 30% of your credit limit from month to month in order to keep your credit scores healthy.

3. Lack of Credit or “Thin” Credit

If you’ve closed your old, unused credit card accounts, you may find it more difficult to open new accounts in the future. Likewise, if you’ve never had credit, expect to have less favorable financing terms than someone who has already established his or her credit. Because credit scores rank you on your credit history, having little or no credit accounts can mean that you will get turned down for many forms of credit because you don’t have a payment history that creditors can use to gauge your risk.

If you need to establish or reestablish your credit, a secured credit card may be one way for you to build a positive payment history while still taking advantage of favorable credit terms. Keep in mind that student loan repayment can also count, so if you have student loans, paying them off can contribute to establishing a positive payment history as well.

There are no easy answers when it comes to obtaining the best credit score possible. If you are having problems with negative credit and low credit scores and you can’t resolve the issue on your own, the next step may be to seek help from a professional credit repair company. A reputable credit repair service can help you to evaluate remove listings on your credit report. Negative items that aren’t accurate can be disputed, which will significantly raise your credit scores if you are able to have them removed.

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Mar 26, 2010

Helping Your Teen Build Good Credit – Joint Accounts

Gone are the days in which credit card companies can target college-age students for easy credit. The new credit card laws prohibit any teen from having a credit limit that is more than 20% of his or her verifiable income. If your teen doesn’t have a separate income, expect to have to cosign on credit card applications – making you legally liable for charges as well.

If you want to help your teenager build a solid credit history and high credit scores, it’s important to establish responsible spending habits from the start. A joint credit card account can help your teen learn to manage debt responsibly, while taking advantage of your credit history to provide lower rates and better terms.  However, opening a joint account with your teen has an impact on your credit scores as well. The new line of credit, as well as your teen’s spending habits will be reflected on your credit report.  Here are a few tips to make sure that your teen’s new credit card doesn’t spell disaster for your credit scores:

1. Set up-front expectations. Owning a credit card is a big responsibility. Make certain your teenager knows when it’s ok to make a purchase, and what types of purchases are acceptable. Agree upon a set spending limit per month – ideally no more than 10-20% of the total credit limit.

2. Enforce limits. Once you’ve set up purchasing limits, make certain that your teen sticks to those limits by reviewing purchase history and balance information regularly. If you find that your teen is regularly spending more than the agreed-upon amount, you may need to place tighter controls on the use of the card.

3. Use automatic payments. Don’t give your teen the chance to miss a payment. Set up automatic payments that debit directly from his or her checking account, and follow up to be sure that payments are received on time. One missed payment can lower your credit rating as well as your child’s, so it’s important to stay on top of payments from the very beginning.

4. Set up alerts. Many credit cards have an option for email alerts if the balance on the card goes over a certain amount. If your son or daughter is in college far away, these alerts can help you to keep track of your child’s spending before it gets out of hand.

5. Review spending habits. Go over the monthly statements with your teenager for accuracy, and to be certain that your teen is using the card responsibly. Teach your teenager to compare the charges on the statement with receipts and records for the month to minimize the chance for fraudulent charges.

By taking the time to educate your teenager about responsible credit-use, you can ensure that his or her credit scores are well-established along with solid financial habits. This will be especially helpful when it’s time to establish credit in his or her own name, and will give you peace of mind when it comes to your teen’s fiscal responsibility.

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Mar 7, 2010

Paying Down Debts to Improve Your Credit Scores

It’s no secret that excessive debt often contributes to lower credit scores. People who are working to improve their credit scores often have several debts that are in repayment. But how can you know which debts to pay off first, or if you should pay at all? Here are a few tips to help simplify the process.

1. Check your credit report and credit scores. People who know they have poor credit may only know because they’ve been recently turned down for new credit. If that applies to you, get your credit report sooner rather than later. Being turned down for credit entitles you to a free copy of your credit report, even if you’ve already received your credit report in the past year. By getting the most recent version of your credit report and scores, you’ll know exactly where you stand. Start off by disputing any inaccuracies that you see – inaccurate items on your credit report can significantly damage your scores.

2. List your debts from smallest to largest. By itemizing your debts, it will help you to focus on paying down your debts more efficiently. If most of your debts are nearly the same value – $1000 on one credit card and $1500 on another, for instance – then list your debts by interest rate instead.

3. Pay off the smallest debt (or the one with the highest interest rate) first. By getting rid of debts in a targeted fashion, you can improve your credit scores more quickly as you eliminate your debt obligations one at a time. Use the money you spent towards paying down the first debt as an additional payment to pay off the next, and you will be able to get out of debt even faster.

4. Don’t forget to reward yourself along the way. Getting out of debt and improving credit scores is hard work. Whenever you meet one of your goals, set aside a reasonable reward to celebrate your hard work. Whether it’s saving for a vacation, a special night out, or some other treat, make sure that it fits with your current budget and savings goals.

5. Remember that not all debt is bad. Some debts are actually seen as good debt by lenders. In general, if you have borrowed to purchase something that will increase in value, this debt is seen as positive by lenders. Student loans, traditional mortgages, and money borrowed to grow your business all fall into this category. That doesn’t mean that you shouldn’t repay these debts – on the contrary, paying off good debt can only increase your net worth in the future.

Paying down debt and paying on time are two of the most powerful techniques for raising credit scores. If you’re having difficulties with tackling your debt and getting your credit on track, talk to a reputable credit repair agency, and work with a professional to raise your credit scores one step at a time.

Posted in credit repair agency, credit report, credit scores, debt, dispute credit reports, disputing inaccuracies, improve credit scores, paying off debt, raise credit scores | No Comments »



Feb 27, 2010

Keep Your Credit on Track with These Tips

If you’re having some trouble maintaining your New Year’s resolution to get your credit scores under control, here are some ideas that can help you stay on track:

1. Keep a Spending Journal. Often, it’s not the big purchases that can cause problems, but instead, several small purchases that add up. Fast food, movie rentals, and other little conveniences we take for granted can quickly add up. By keeping a diary of exactly what you spend on a daily basis, you can track precisely where your money goes when you make these ‘unseen’ purchases. Once you understand your own spending habits, you’ll be better prepared to stick to your financial goals when temptation arises.

2. Create a Budget. This goes hand-in-hand with your spending journal. In order to control your spending, you have to set reasonable limits. Look at your bills and see where you can cut back, as well as areas that you may need to spend more in order to reach your goals – putting away more money into your health savings account may be useful if you are planning to have a major procedure, and want to avoid maxing out a credit card, for instance.

3. Prioritize. When you are setting goals for improving your credit, prioritize what’s most important. Getting current on everything at once may not be possible, but you can decide to get current and stay current on those cards that are charging the highest fees, for example. Once you’ve met one goal, move on to the next – credit repair is a dynamic process, and as long as you are willing to move forward, you will see positive results.

4. Make a Wish List. Don’t forget to reward yourself (within reason) as your credit scores improve. Try to think of ways to treat yourself that won’t put you back into debt. Save up for a well-deserved vacation, or treat yourself to dinner and a movie twice a month. The trick here is to find something that will motivate you, without breaking the bank.

5. Automate Your Bill Pay. If you find that you are often charged late-fees because you forget the payment due date, why not pay automatically through your bank? Most banks now offer online bill pay as well, so avoiding late fees and the damage to your credit scores can be as simple as a click of the mouse.

6. Keep Track of Your Progress. Don’t forget to check your credit report and scores to gauge your progress after several months. Everyone gets one credit report per year for free – and people in some states get 2, so check your local regulations. Make sure that companies are reporting your timely payments accurately, and don’t forget that you can dispute inaccurate information on your report. If you need help with the process, work with a reputable credit repair agency to get the job done.

The ‘trick’ to credit repair is in knowing that it is an ongoing process. As you move towards your financial goals, always be willing to incorporate ways that will make it easier for you to succeed.

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