Defaults & bad records
Late payments go through several stages. In the beginning, the consequences are mild, there’s very little impact to your credit. As you get become more delinquent on your payments, your credit is affected more, your balance grows and it’s harder to get caught up. Understanding the stages of a late payment may make you want to work harder to keep your payments on time.
Less than 30 days late
If you’ve only missed your due date by a few days, you’re still less than 30 days late. Your credit card issuer will charge a late fee (which may not show up until your next bill), but at this point, nothing goes on your credit report. Send your payment before your next due date and the credit bureaus will never know you were late.
30-89 days late
Once you’re 30 days late, however, the credit card issuer will update your credit report to show that your payment was late. If you catch up on your payments, your account status will go back to current, but the old late payment still remains. On the other hand, if you miss your payment again, making you 60 days late, your credit card issuer can charge the maximum late fee of $35. After that, your interest rate increases to the default rate.
90 to 180 days late
Between 90 and 180 days late, the late notices continue to be Read more…
Failing to make your payments on time will lower your credit score, but that may be the only reason that appeals to common sense. Stranger ways to lose points abound.
It takes years to build up a good credit score, but very little effort to trash it. In fact, sometimes it is the actions you take to manage your credit more responsibly that lower your score. Obviously, missing payments affects your score negatively, as it should.
If you have several cards and aren’t using them, you might naturally think that getting rid of available credit and loans would show how responsible you are, and get you a nod of approval from the credit police, wouldn’t you? Actually, the opposite is true. Closing card accounts lowers your available credit, so the ratio between any debt you have and the amount you can make use of becomes higher. This is known as your debt to credit ratio, or debt load.
Say you have three credit cards, each with a $1,000 credit limit. That means you have $3,000 available to you. If you charge $1,000 on one card, your debt load is now $1,000 from $3,000, or 33.3% So now you have a monthly payment, and realize that by the time you get it all paid off (depending on your interest rate), you are going to pay $1,400 for $1,000 worth of stuff you didn’t really have to have after all.
You’re thinking like a grown-up now. Proud of your new awareness, you cut up one of your other cards since you will never be so frivolous as to charge $3,000 worth of stuff. You call the bank and Read more…
When it comes to credit, what you don’t know can hurt you. Your financial profile can take a hit based on the information you do not clearly understand. The many myths of credit repair and credit scores can actually leave you in a worse situation than where you started.
The Reality of Medical Debts
One of these myths that is often believed by consumers is that medical bills do not hurt a credit score. Many times people will forgo paying off their medical bills to focus on their other creditor debts thinking that overdue medical bills won’t impact their credit score.
However, medical debts are treated just like any unpaid creditor debt. The money you owe is expected to be paid. The medical provider will not necessarily send the information to the credit reporting bureaus each month but they will pass your accounts to debt collectors. It is then that the unpaid debts will cause your credit score to drop and lenders will see your medical accounts are in bad condition.
Once an account goes into collections, regardless of the account type, you will not only have the drop in credit score, you will also have the Read more…
Clearing up your credit history often will involve handling collection agencies that have assumed your old debts. Collection agents are infamous for using tactics that are less-than-nice when trying to get back money owed. In many cases, a collection agent will get paid a percentage of the debt they are collecting on so they utilized no-holds-barred techniques to get a payment.
For some consumers who show collection agency information on their credit report, it can be difficult to negotiate the removal of the data from the report. But there are methods to be considered when trying to clear a collection agency debt from your consumer credit report.
Here are four options you have for handling a collection agency debt:
Pay Up In full
If the collection agency is able to validate your debt and it is a relatively small amount, it may be in your best interest to pay the balance off in full with the contingency that the debt information will be removed from your credit report. Not all collection agencies will be cooperative but many will agree to remove the data once the debt has been satisfied in full. They want to get back as much money as possible so they will be somewhat open to working with you. Too many consumers fail to ask for the incentive when they agree to pay in full so they end up with no real changes on their credit report. Get any agreements in writing.
Ask for a Settlement
For larger debts you can not afford to pay in full, discuss Read more…
Credit and debt are very closely related. How you handle your debt can either help or hurt your credit score. On your credit repair journey, it’s important to be aware of what you’re doing with your debt.
Too Much Debt Hurts
A large part of your credit score – 30% – is based on how much debt you’re carrying on your credit cards. If you have a lot of debt compared to your credit limit, then your credit score will be hurt. However, carrying low balances will help improve your credit score and make you a more desirable borrower. Make paying off debt part of your credit repair plan.
Paying Late is Deadly
One of the reasons to keep your debt low is that it keeps your payments at a manageable level. Once your payments get too high, you’ll have trouble keeping up and you may have to miss a month. Late payments will kill your credit score.
It’s not ok to make a late payment just because your credit score is already bad. Doing that will just lengthen the amount of time it takes your credit to recover. Those old late payments will hurt your credit score less as time goes on, but any recent late payments will have to age before the damage lessens. Read more…
Debt settlement is a legal option available to financially strapped consumers who are struggling to recover from huge debt burdens. Despite the fact that this option is perfectly legal and been in practice for many years before the recession, debt settlement is strong medicine for your debt problems. It should be considered as a last resort option for individuals who have fallen behind on their financial obligations but want to avoid filing for bankruptcy.
What is debt settlement?
Also referred to as debt negotiation, debt settlement is a practice where an individual or a third party company hired to represent an individual, negotiates with a creditor to reduce the balance needed to pay off an account. Most creditors are unwilling to negotiate a reduced payoff amount if an account is current, which is where problems with your credit first begin. In order to negotiate with your credit card company you will likely have to be delinquent on your account which obviously affects your credit score. With that in mind, understand that while a successful negotiation of your debt may help you reduce the amount owed, the process itself will damage your credit.
How to repair credit after debt settlement?
Consumers who have gone through the debt settlement process have a long road ahead to repair their credit. Fortunately, despite the negative affect of debt settlement on your credit, the consequences are less severe than filing for bankruptcy. Credit repair after debts have been negotiated can be accomplished with the following steps. Read more…
If you experienced financial difficulties at some point in your life which made it impossible for you to make payments owed to a lender – after awhile, it’s possible the lender “charged off” the account. You will need to work on credit repair after an account is charged off.
What is a Creditor Charge-Off?
When a creditor considers an account as being in charge-off status, they are essentially considering the debt as uncollectible so late in the game. The chances of a consumer paying off the total debt are slim to none. At this point, the creditor will charge-off the account, meaning they will write off the debt for their own tax purposes and claim the loss.
While the debt may be gone in the eyes of the creditor as far as collection goes, the debt you have incurred with the creditor is still very much legally collectable provided the debt is still valid. At this point, a creditor will seek out the services of a debt collector to pursue the debt.
Unfortunately for the consumer, a charged-off status will show up on your credit report and is bad news if you wish to pursue financing in the next seven years. It is about the worse mark you can get on your credit report and lenders do not take kindly to your inability to meet financial obligations extending this far past due. You will be noted as a credit risk and find it hard to get credit for many years to come.
How to Deal With a Charge-Off
Ideally, all consumers should strive to repair their credit before a charge-off is reported to the credit bureaus. It is in your best interest to request copies of your credit reports and see where you stand. Make every attempt to negotiate the balances you owe to get current with your creditors before being sent to collections. Many creditors will be willing to take lesser amounts in order to settle the debt. Marks on your credit report will not be great but a settled account looks better to lenders than doing nothing at all.
If you have reviewed your credit reports and found that an account has been inadvertently reported as being in charge-off status, it is essential that you dispute the item with the credit reporting bureaus as well as the creditor or collection agency to have the item removed as soon as possible. Repairing inaccurate information on your credit report can significantly improve your three digit credit score, especially where a charge-off account is concerned. Since credit reporting agencies are susceptible to human error, it is always wise to regularly check your reports for such errors.
If a charge-off is correct, there is no way to remove the mark on your credit report, even if you make an attempt to pay off or settle the debt after the fact. It is mark that will drop your credit score and present you as a credit risk for future financing. If you have more than one creditor reporting a charge off, it is very important you still attempt to improve your credit score and repair your credit history in every other aspect. Seven years is a long time to wait out bad credit news so be proactive about your credit monitoring and credit repair activities.
Credit Repair Activities After a Charge Off
First, get a copy of your credit report to view the account and how it is listed on your credit report. See how much you still owe on the account, and how much of it is listed as “past due”.
Can you pay the account in full now? If so, contact the creditor and find out how to make payment and how long before the information is corrected on your credit report.
If you do not have enough money to pay for the account in full, contact the lender or the collection agency handling the account and find out what your options are. Sometimes they will accept a payment plan toward paying off an account in charge off status; other times they require a lump sum payment. If they do accept payments, ask whether or not they will also update the account on your credit report to show you are making payments. This would show any other companies viewing your credit report that you are making good on this debt – although your credit score itself would not likely improve until the account is paid in full.
Settlement of a Charge Off Account
For accounts with large balances which have charged off, you may want to consider “settling” the debt with the lender. Sometimes you can make arrangements to settle an account for much less than you actually owe. You might consider this route if you are unable to come up with the full amount to pay the account off, as the damage to your credit score has already been done. Normally, a debt settlement will lower your credit score, but since the account is already in a charge off status, settling the account for less than you owe is not going to hurt your credit score any further – making it a reasonable option for starting credit repair after an account has charged off.
You can expect most lenders to accept 70 cents per dollar owed; or perhaps as low as 50 cents per dollar owed in the form of a settlement. If they agree to your proposed settlement amount, get it in writing, including a notation that says they will update your credit reports to show the account as settled, paid as agreed. Once you’ve taken care of this settlement payment and your credit report has been updated – you will begin to see your credit score improve as you make your other payments on time.
When you struggle with debt issues, it likely will be no surprise to you to find that an account you haven’t been able to pay has been turned over to collections. This means your original creditor probably wrote off your bad debts and sold the account to an agency specializing in debt collections.
The biggest issue most debtors think about when accounts are sent to collections is the harassing, aggressive tactics often used by debt agencies who want their money. However, concerning your financial status, there are more important issues at stake. When your account is sent to collections it has a significant impact on your credit report and score. Read more…
If your find that month after month it is becoming more difficult to meet daily expenses using only the cash you earn from your job, it can be tempting to rely on your credit cards to ‘make it through’ until the next payday. This tact is not beneficial to credit repair or debt relief and can find you under a heavier debt burden you can’t afford to pay.
In theory, it’s nice to have the backup resource of a credit card for things you need, using your credit card as an extension of your income is dangerous territory. If you can not afford the cash to pay for the items outright, you certainly can not afford the fees and interest incurred throughout a billing cycle. Read more…
There’s a negative stigma attached to bankruptcy, but the truth is that it’s the only way out for many consumers struggling with bad credit. When credit repair isn’t working, how do you know if bankruptcy is the path you should take?
The benefit of bankruptcy is that it temporarily stops collection activity on most of your debts. Once you file bankruptcy, you get what’s called an automatic stay. This action prevents creditors and collectors from calling you, sending letters about your debts, garnishing your wages, or levying your bank account. You may even able to stop foreclosure and eviction after filing bankruptcy. Note that some creditors may get special permission from the court to keep collecting from you. Read more…