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Credit Score Ranking: What You Should Know

Credit Score RankingA consumer who has a FICO score of 600 will pay about $300 more a month on a $150,000 mortgage than a person who scored 800. That's $108,000 more in interest over the life of a 30-year fixed-rate mortgage, according to calculator.

In June of 2000, Congress passed a law forcing FICO to release the list of criteria used to arrive at a credit score. The following is a general guideline for the FICO scoring system. Unfortunately, FICO uses at least ten different models to calculate the likelihood of a consumer paying back a debt.

Bill Payment History

35% of your score is based on your bill payment history. Late payments or those turned over to collection agencies, as well as a bankruptcy, can seriously lower your credit score. But timely payments of credit cards, utility bills, retail accounts, installment loans and mortgage will go a long way at boosting your FICO score.

Tip: Make sure that your good credit history is showing up on all three of your reports. Sometimes creditors will only report to one of the three agencies. This can lower your overall credit score, especially with creditors who only pull reports from one or two bureaus to make their credit decisions.

Lynnette Khalfani, author of Zero Debt: The Ultimate Guide to Financial Freedom, states, "Ask your lender to report it, or you can write to the credit bureau directly. 'I have this account. Please add this to my credit file'."

Account Balances

Another 30% of your credit score is based on how much outstanding debt you owe. For the FICO models, outstanding debt is the amount of your credit limits in comparison to the amount of your outstanding balances. The closer together the two are, the more likely your credit score will be lowered.

These balances include revolving credit like Visa and MasterCard but also other installment loans such as home equity lines of credit. One consumer raised his credit score by 60 points paying down his home equity loan.

Experts recommend keeping no more than three or four open lines of credit with balances of no more than 30% of their actual limit.

Tip: Check that all credit card lenders are reporting your limits to the credit reporting agencies. Some creditors purposely hurt their customer's credit ratings by either withholding limits, or reporting them as the same amount as the current balance. This makes their customers look less appealing to other credit card companies thus protecting their customer base. Unfortunately, the resulting lower scores do more than deter other credit card companies. Many financial services can require higher interests rates due to this false information.

If this is happening to you, call the credit card customer service department to complain about these unfair practices.

Length of Credit History

15% of a FICO credit score is based on your past credit performance. For this reason, borrowers with too little or no credit history are considered as much a risk to creditors as those with poor credit.
Old debt doesn't hurt your credit score as much as new debt. This is good news for those of us who have been working to overcome past financial challenges. Remember that negative credit is only allowed by law to remain on your credit history for up to seven years. Therefore, the longer time has passed with no negative reports to your credit, the better.

Once you have paid down old credit card accounts, you may find it beneficial to leave them open. The zero balance can help lower your overall debt-to-limit ratio, as well as raising the average account age of your other loans.

Tip: Children going out on their own often find it difficult to establish credit. Revolving credit cards and auto loans with the best rates require some positive past credit. Parents can help their children establish credit before leaving home by co-signing on low balance car loans, or adding their names to a low balance credit or gas card. This is also a great way to teach responsible credit management.

Types of Credit and New Credit Applications

10% of your score is based on the type of credit you carry. Mortgages and auto loans look good and can raise your score, while credit card and other debt with high interest rates aren't so attractive. Another 10% is based on whether or not you have been looking to take on more debt. Each time a potential creditor pulls a credit report, the credit bureau keeps track. These inquiries are listed on your credit report and kept for two years. Too many inquiries may lower you credit score.

Tip: Not all credit inquiries are bad. Promotional or account-review inquiries, made by companies who may offer you credit, insurance or are evaluating your current credit status, are not listed. These institutions aren't given a full credit report and their inquiries do not affect your credit score. Be careful about applying for department store cards or other loans just to get the discount or promotional gift.

Improving a poor credit score is based on the same principle as keeping a credit score high. Responsible financial management, prompt loan payments, low credit balances and moderate debt will go a long way to keeping your FICO score healthy.

Top 10 Credit Score Myths Debunked

Credit Score MythsA low credit score can cost you dearly in terms of extra payments over the years toward something like a home loan. The difference between a credit score of 579 as opposed to 760, for example, for a 30-year fixed loan for 80 percent of the value of a property that sold for $300,000 could translate into some $300,000 in additional interest over the life of the loan. 

On a typical auto loan from a bank, a borrower with a low score would be charged a higher rate and likely pay at least several thousand dollars more in interest over the life of the loan. In the realm of credit cards, too, the best offers, rates and terms are reserved for consumers with the best credit. People with flawed credit profiles are severely penalized. 

Most people have at least a general awareness of the importance of credit with regard to traditional borrowing. as it relates to mortgages, car loans and credit cards. What they are typically not aware of is the influence of personal credit in areas that extend beyond the realm of traditional borrowing. If you are like most others, not only would you not be aware of these aspects. Most likely, you would be quite surprised. 

Many popular misconceptions about consumer credit can hinder or even hurt people, in their efforts to make the system work to their best advantage.

The following myths, followed by brief corrections, may arguably be considered the top ten:

  1. "Every person who has a credit record has a credit score." No one has "a credit score." What each consumer has is actually a variety of different credit scores. 
  2. "I can choose to 'opt out' of the credit system by simply paying cash for everything." Only someone living as a hermit in a remote area, never paying for rent, utilities or phone service could truly opt out of the credit system. 
  3. "My credit profile is the same at all the credit bureaus." Credit profiles - and scores - can vary significantly, from one reporting agency to another. This fact has serious ramifications for your personal credit strategy. 
  4. "I'm entitled to a free copy of my credit report and credit score." You are entitled by law to free copies of your credit reports, under certain conditions. You are not entitled to receive any of your scores for free, however, although there are ways that you can obtain some of your scores without paying for them. 
  5. "Anyone who wants to get a copy of my credit report needs my written authorization." In reality, the Fair Credit Reporting Act (FCRA) allows anyone to pull a person's credit report (with some restrictions) as long as the person or business retrieving the report has a "legitimate business need for the information in connection with a business transaction involving the consumer," which in actual practice can mean almost anything. 
  6. "My credit history and scores will only affect my applications for credit." Credit profiles and scores are now used in numerous other areas, apart from applications for credit, including employment, insurance and even health care. 
  7. "There are only three credit bureaus worth knowing about (Equifax, Experian and TransUnion). ". This was largely true until quite recently. Now the advent of a new "super" credit bureau suggests that landscape may change significantly. 
  8. "The only thing that can remove negative entries from credit reports is the passage of time." Waiting is certainly one option but there are also numerous steps that consumers can take to proactively repair damaged credit. 
  9. "All negative information on credit reports is dropped after seven years, except for bankruptcy, which stays on for ten years.". There are a number of important exceptions to this rule, exceptions that allow negative information to remain on a consumer's reports indefinitely (that's right: forever). 
  10. "Closing a credit card account will lower my credit score.". This is possible but not necessarily true. Knowing when you can close down accounts without penalty can save you from effectively being blackmailed into paying years of annual "membership" fees unnecessarily. 

As just mentioned, credit profiles and scores have influence that now extends well beyond the world of borrowing. Landlords, of course, use credit histories and scores to screen applicants. Those with credit issues may be rejected. Most auto and homeowner insurers use credit information in setting premiums, based on the correlation between good credit and low claims costs. 

The most important factors in determining car insurance rates are said to be age, place of residence and driving record. When quoting a rate, however, most insurers also check a driver's personal credit. The reason is the strong positive con-elation between credit scores and the likelihood of filing an insurance claim. The higher a driver's credit score, the less likely that person is to file a claim. 

A handful of states, such as California and Massachusetts, forbid insurance companies from checking credit scores. Efforts to ban the practice nationally through federal legislation have consistently failed, however. 

A recent study conducted by found that drivers with high credit scores pay substantially less than drivers in the same age bracket with scores that are only average. The version of your credit score that insurers use is not a true FICO score (discussed in detail below) but a variant used specifically by auto insurance companies. In this version, factors deemed to reflect risk - such as bankruptcy filings and fully used credit limits - are given more weight. 

The study found that young adults aged 25 to 34 with clean driving records and credit scores of 750 and above pay an average of 40 percent less than drivers in their age group with clean driving records who do not have high scores. Although premiums tend to drop with age, drivers in higher age groups with the best credit scores still pay less. In fact, the study found that the average lifetime savings for drivers with good credit totals $23,000.

If you can achieve this type of savings in a number of different areas of your life - depending on what age you begin - with the magic of compound interest, you may have an additional million dollars upon retirement. As we will repeatedly demonstrate, good credit pays. 

Not only can your credit history affect your insurance rates, it may also affect whether you are hired, promoted or fired. Six out often private employers check the credit histories of at least some of their job applicants, according to a survey by the Society for Human Resource Management. Thirteen percent use credit checks for all their employees, regardless of whether the job has anything to do with handling money (the traditional rationale for checking).

This practice exists in spite of the lack of evidence linking bad credit and theft or any other on-the-job problem. Employers' ability to check credit reports is restricted in six states (California, Connecticut, Hawaii, Maryland, Oregon and Washington) but these restrictions are limited. Examples of exceptions are jobs in finance or those involving access to large amounts of cash 

The federal Fair Credit Reporting Act (FCRA) requires that employers obtain an applicant's or employee's written permission to conduct a credit check. As a practical matter, however, the individual has little choice. If you want the job or want to keep your job, you must agree. 

If the annual salary for the job involved is $75 000 or more, the information that will show up on the report will not exclude negative items that are more than seven years old—or ten years, in the case of bankruptcy. In this case, the reports may show negative information going back in time indefinitely. This is an exception provided for in the Fair Credit Reporting Act. 

The logic behind the use of credit reports to screen applicants and employees is to minimize the likelihood of theft or embezzlement, exposure to lawsuits in the event of misconduct on the part of an employee and to assess a person's overall reliability. Presumably, a person under financial pressure from collection accounts and outstanding judgments (unpaid debts that creditors have a right to collect) is more subject to the kinds of behaviors that an employer seeks to avoid. 

Unlike the demonstrated correlation between credit scores and insurance claims, there is no actual evidence of any con-elation between credit profile data and on-the-job behavior or performance, however. 

The use of credit checks by employers spans all industries. It is not just limited to financial institutions, law enforcement. government jobs requiring security clearance and the health care industry, where employees have access to sensitive patient data and closely regulated drugs. Access to customer credit-card data, in any industry, could be used to justify a credit check. Waiters, waitresses, store clerks, online support personnel - the number of people potentially affected is much larger than one may at first think. 

The top two reasons for a negative outcome resulting from a credit check are current outstanding judgments and accounts in collection (unpaid debts that a creditor has the legal right to collect). If the negative decision is openly attributed to the credit check, you have a right to receive a copy of the report at no charge if you make your request within 60 days. In this case, the employer must give you the name and address of the credit bureau or bureaus from which your information was accessed. 

More likely, however, most employers probably aren't going to disclose an applicant's or employee's being rejected or fired on the basis of information in his or her credit files. It's much easier for an employer to provide another reason or, in some cases, not to offer any reason at all. The people this places in the worst bind are those who have bad credit in part because they lost their jobs but can't get another job because of their bad credit. To paraphrase Yogi Berra, it's Catch-22 all over again. 

If you think being turned down for an apartment, an insurance policy or a job can be a serious inconvenience, imagine what it's like to be refused emergency medical treatment because of your credit score. That's right: When it comes to hospital admission, your credit score can literally be a matter of life and death. A low score, even if it's based on erroneous information, can prevent someone from being admitted to a hospital, for urgent medical care. 

Sometimes a life-or-death situation that hinges on credit can occur outside the context of a hospital. Recently, a senior citizen in poor health wanted to move out of his New York City sixth-floor apartment, with no elevator, to subsidized housing with no stairs to climb. His application was denied when his credit record showed a default judgment of which he was not aware. The judgment was vacated upon appeal with the help of a legal aid society for the indigent. Before the stain could be removed from his credit file, however living under the strain of six flights of stairs to navigate - the man died.

Getting Your Free Credit Report

Why Do I need My Credit Report? 

Getting Your Free Credit Report
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The end goal of this blog is to help you repair your credit, and do so  quickly. While tips and tricks to help it move along faster will be given, you as the consumer will definitely be needing to do a bit of legwork to accomplish this task. You will need the information provided on your credit report before we can go any further. There are a few different ways to go about getting your credit reports.

There are several websites on the internet where you can request a free credit report once a year. Some websites will not let you access your report unless you provide billing information. Do not be tricked by the websites that offer you a free trial, only to turn around and charge you $20 a month. According to federal law, you as a consumer are entitled to a free report once a year.

A few of the free websites are:

There are three main credit reporting agencies. Experian, Equifax and the TransUnion. One downside to using some of these websites is that the reports they provide you will only be from one of the three credit reporting agencies. You will want a full report from each of the agencies because sometimes they have different information contained in them.

One way to do this is to figure out which agency s report is furnished by which website. You can then register for the different websites and try to acquire all 3 reports that way.

You can also go to the credit reporting agency s website and request your annual credit report directly from them. You might have to pay a little bit for this option, though.

Needed Information 

You will need to have access to certain information no matter which option you choose to go with to request and receive your credit reports. Some of this information is easy, such as your name, social security number, and birth-date. The system might also ask to know the amount you pay for your mortgage payment, the make of a car you have owned, or for a list of previous addresses. This information might be a little harder to remember or seem unimportant, but it is necessary to verify your identity.

The reporting agency is just trying to ensure they are providing you with the correct information.
Sometimes, the agency is unable to properly ensure your identity through online means. They will request you to send forms of identity verification through the mail and once they are sure you are who you say you are, they will mail your reports to you. This can be frustrating, but they are just trying to make sure that they are giving your information only to you, and not an identity thief.

Whatever avenue you pursue, just request your reports, print them out or wait by the mailbox and in the now we will learn how to decipher what they mean.

Understanding Your Credit Report 

To determine what exactly is causing the issues with your credit scores, you need to be able to read your report and understand what it is  telling you. Right now, you are probably looking at these papers, thinking  you are more likely to understand ancient Egyptian hieroglyphics than all
of this information. Whilst it can be confusing, I promise you I am going to
help you understand it.

There are four sections to a credit report, and they all contain  different but equally important information. Remember, FICO and  Vantage use this information to determine your credit score, so it is vital  for you to make sure the material contained in your credit report is as  accurate as possible.

Personal Information 

This area is pretty self-explanatory, but there can be inaccuracies in the data contained in this section. This material is supplied to the credit reporting agencies from any lender who runs a credit check on your information.

In the personal information section of your report you will find:

  • your full name and any other names you may have gone by in the past, including your maiden name. 
  • your current address, and addresses where you have lived in the last  several years. the name of your current employer, what your job task is, and how long you have been employed there; as well as information from your  previous employers 
  • the report will also list the dates when all this information was  provided 

You will need to pay close attention to this portion of your report. It is not uncommon for your name to be spelled incorrectly, or for your maiden name to still be listed instead of your married name (if you have one). Maybe there is someone who has a name very similar to yours, and it might be listed here. If the birth-date is wrong, this will also present an issue as it is clearly not your personally identifiable information. Double check the addresses, and employer information to ensure they are correct as well.

Unfortunately, sometimes you will discover more than just a misspelling or a typo on a date here. You could also find that someone else  has been using your information to accrue credit and debt. This is a huge  problem and needs to be fixed immediately.

If you do discover erroneous data, like the misspelling of a name or that someone else is using your information; you need to take care of this immediately. For the report that has the incorrect things, you can log onto the website of the specific credit reporting agencies to let them know there are errors. To correct these problems, you may be required to send them information proving you are who you say you are. This might include copies of your driver's license and a utility bill. If someone has stolen your identity and is using your information, the credit reporting agency may place a fraud alert on your report and freeze it so that no one can access it until the problem is taken care of.

Credit History 

In this section of your credit report, you will find listed all the accounts you have in your name. They will be separated into different sections depending on the information they provide in the report.
In each section will be listed the pertinent information for each account. If any of your debt has been given to a collection agency (because you defaulted on paying it), the information about that will be included in this section, too. You will also find information about:

  • The original and current balance of your accounts 
  • Whether your accounts are open/closed/or charged off 
  • Type of account, revolving or installment 
  • Your credit limit 
  • Your payment status 
  • If the account is an individual or shared responsibility account 
  • Past due information 

There will be a section listing all your adverse accounts and potentially negative items. These accounts are the ones that have a negative impact on your credit score. In this section, the accounts listed will be ones that have been reported by the lender as unpaid, or paid after their due date during the timeline of the credit account. Even if you are currently up to date on all your accounts, those payments you might have missed last year or whenever can come back to haunt you here. If you can prove that this information is wrong, you have the ability to dispute it with the credit reporting agencies which we will discuss in a later chapter. After 7 years, your adverse accounts typically fall off your credit report.

There will also be a section for your accounts that are in good standing. This will list all of your accounts that you have been faithful in paying on time. This is the information that will positively impact your credit score.

In the Payment Status section of each creditor's report, you will find  information regarding the status of your account. It could say paid in full, or closed, or charged off. If your account has been charged off what this means is that basically the lender has given up on you paying what you owe them, and has decided to count the loan as a loss. After the lender charges off what you owe, they usually send your account to a collections agency. The collections agency will then try to get you to pay what you owe. Even if you pay the collections agency what they are charging you, this debt will not be erased from your credit report. This is because even though you paid the collections agency, you still owe the money to the original lender. This "charge off' is one of those things that can be reported in the adverse accounts and potentially negative information section of the credit history section of your credit report.

There are also different types of accounts that will appear in your credit history. There can be open accounts, collection accounts, revolving accounts, and installment accounts. An open account is rare to see on your credit report. This kind of account is one that requires you to pay the balance in full each month like your rent, utility bill, and electric bill. These types of creditors very rarely report to the credit reporting agencies. A collections account is one like we just spoke about. A collections account will appear on your credit report if you have become delinquent on any debt and it has been sold to a collections agency. A revolving account IS the most common type of account to appear on your credit report. Credit cards are the most typical form of revolving debt. Revolving debt does not have to be paid in full every month. The amount owed can  fluctuate. You can accrue a certain amount of debt that can change over time, and pay interest on that debt. Loans such as student loans, a car loan, or home mortgage loan will appear on your credit report as an installment account. An installment account is one that has a fixed payment for a fixed period of time. No one expects you to pay your 30-year mortgage in one payment, so in an installment account is one in which you can expect to pay the same monthly payment over the course of the loan. With a mortgage, it's typically 30 years.

Credit Inquiries 

This section of your credit report will include information on everyone who has pulled your credit report to learn more about you. Not just anyone can make an inquiry into your credit history. Usually, it's a lender when you apply for some sort of credit. Applying for a credit card, a home loan a car loan or any other sort of credit will result in an inquiry into your credit history. Aside from lenders, an inquiry into your credit can also be made by a potential landlord, an employer when you're seeking a job, or even insurance companies while you're shopping for the best rate on car isurance. 

There are two different types of inquiries; a hard inquiry, and a soft inquiry. A soft inquiry is made when you take a look at your own credit report, or when some lending institution pre-approves you for an offer. These soft inquiries do not generally affect your credit report at all. Hard inquiries, on the other hand, can affect your credit score. The impact won't be drastic but it can certainly drop your score by a few points. Hard inquiries are made by lenders when you apply for a loan or a line of credit. Too many of them in a short amount of time can have a negative impact on your credit score. 

These requests for access to your credit history information can be voluntary (meaning you allowed someone to make the inquiry, usually by signing a document saying so), or involuntary (meaning someone made the inquiry without your permission). This distinction will be important when we get to the blog post about cleaning up your report. You can learn more about removing inquiries from your credit report here

Public Record 

The public records section of your credit report will include information provided by state and city courts regarding the debt you owe and legal action was taken against you. This can include bankruptcies, foreclosures, lawsuits, wage garnishments, tax liens and other things. Generally, nothing good can come from information in the public records section of your credit report. Listen formation can stay on your credit  report for 7 to 10 years before falling off. 

Checking the Information 

Now that you have a better understanding of what all the data on your credit report means, you need to check and make sure it is accurate. Grab a glass of wine, a notebook, a highlighter, a pencil, and your credit  reports and let's get started. 

First, look through the personal information section and make sure your name, address information, employment history and everything contained here is right. If any of this information is incorrect or just plain false highlight it and then in your notebook make note of the correct information. 

Next, go through your credit history section focusing on the negative information area. Make sure all of these accounts are actually yours and that the information the credit report has regarding the accounts is correct. Though we Will be focusing on the negative accounts, please make sure that all the information given for the positive accounts is correct as well. If there is any incorrect data in any of this highlight it and make note of it in your notebook. 

Then, go through the credit inquiry section, highlight all the inquiries you are unaware of. By unaware of I mean inquiries that you aren't sure you gave permission for. If there are any, write them down in your notebook. 

Last, comb through the public records section of your credit report. If there is any information reported here, make sure that it is correct information. Make that you were aware of these judgments against you. A bankruptcy will not be a surprise, and neither will a judgment from Uncle Sam. Unfortunately, sometimes, a creditor or a collection agency can get a judgment against you without telling you. You won't know about this until you go through your credit report, or apply for a loan and get denied because of. Just so you know, this practice is not legal. I explain how to file with the credit reporting agencies to take care of this if it is a problem on your reports. 

How To Deal With Financial Stress

Financial StressDo you want to de-tress your financial life? Try drawing yourself a bubble bath or just kick up your heels and relax. Whatever you do, if you really want to cut the amount of stress in your life, you might need to do a bit more work to get the truly long-lasting effects.

Money is one of life’s biggest stressers. From college kids to senior citizens, finances are a common cause of anxiety, whether it’s concerns about savings, bad credit reports or just not enough in the checking account.

Here are a few things you can do to cut down on your financial stress, now and for the long term.

Get the lay of your financial land. If you don’t know where your money is, you won’t be able to deal with it properly. To do this, get your bank statements in order and get copies of your credit report, as well as any investment information and retirement plan paperwork. Assess what you really have, after taking into account the debt you owe and how long you’ll be paying it off.

Get automated. If sitting down to sort through and pay your bills is a stressful activity for you, cut it out of your schedule. Of course, those bills will still need to get paid, but you can do it without even thinking about it by signing up for automated bill payment. The money is simply deducted from your account, so you’ll always be on time, and no late payments will mar your credit report.

Look for new ways to save. Having more money in the bank is always a comfort. Even if you already have a savings account started, look for new ways to add to it. Try estimating the amount you spend on a guilty pleasure every month, and deposit that into savings – but follow through and cut out the habit, too. Or, gather up all the change in your house and have it deposited into your account. There are plenty of little ways to put a little more padding on your savings – just keep in mind that little additions can really add up in the end.

Renew your budget. If you have a budget plan and you’re still finding yourself stressed about money, it’s time to revamp it. Identify your fixed costs, and then get creative with your discretionary money. Perhaps you need to re-route it toward something better for you – yoga classes instead of Friday and Saturday nights at the bar. Or, use more of your discretionary money to pay down debt faster – you’ll be eliminating the stress of debt and cleaning up your credit report at the same time.

The ultimate stress reducer when it comes to money is knowing that your money is being well-spent. Wise use of credit and good financial management can help you secure better loan terms and interest rates, and provide a sense of security for you and your family. Make sure that you’re making smart decisions that will pay off in the long term, and you’ll be less stressed about your finances.

Credit Management Advice Every Parent Should Give

Family When parents send their kids to college, they’re hoping Johnny or Susie graduate with a degree and a shot at the good life that comes with that piece of paper. But a growing number of college seniors are also graduating with something else that could affect their future – credit card debt.

College seniors graduate with an average credit card debt of more than $4,100, according to a 2009 study by Sallie Mae. And the ave
rage balance for all college kids (and 84 percent of them have at least one credit card) is $3,173, the study showed. From tuition and books to food and gas, college students are using credit cards to pay for everything.

Parents may wonder how all that debt will look on a credit report, when the individual being reported on doesn’t even have a steady source of income yet. How will starting their professional and personal lives already in debt affect their long-term financial health?

It’s never too late – or too early – for parents to start giving kids guidance on how to manage credit. Before your college-aged child gets her first credit card, make sure she understands how credit actually works and how her credit report affects her ability to get loans – and possibly even a job – in the future.

You can try several different tactics to help guide your child toward a better understanding of credit, including:

  1. Introduce her to her credit report. As an adult, she may choose to review her credit report on a regular basis. As a young person who’s just starting to use credit, she should also look at her report. Not only will it help her understand the basics of her credit score and what factors determine it, checking her credit can help catch any fraud. Identity thieves have been known to target people with very little credit history, such as children.
  2. Help her open a checking account. With a joint account, you can monitor how she uses her debit card. It’s also an opportunity to teach an important basic financial skill – how to balance a checkbook.
  3. Lead by example. If you’ve been able to avoid high credit card debt, help your child understand the steps you took to do so. Clue her in to how smart credit use has helped your credit report, and how in turn, your good credit has helped you make purchases that have enriched your life – like the home you share. If you’ve made mistakes, let her see the consequences you face; she may be able to learn from your mistakes without having to repeat them.
  4. Permit her to have a credit card, one that you’ve co-signed for, early on. As the responsible adult on the account, it’s up to you to show her how to responsibly use credit. Make sure she gets the bill – and pays it off – every month.
  5. Make sure she understands the importance of reading the fine print on credit card offers. Penalties and fees can run up the balance on a teen’s credit card almost as quickly as imprudent spending.Finally, don’t despair if your college student already has a credit card (or more than one) with a balance on it. Help her view this as an opportunity to improve her credit score. Sit down together and create a plan for paying off the debt. Think how good it will look on her credit report if she demonstrates her ability to manage debt before she even graduates from college.

How Long do Hard Inquiries Stay on Your Credit Report?

Whether you’re actively working to repair your credit, just establishing a credit history, or working toward a major purchase like a home or vehicle, you’re rightfully concerned about improving your credit score. You may have even done research on the subject, learning that a number of different factors go into your cumulative credit score and some have a greater impact than others.
The question that heads this article is a perfect example: Some consumers may ask, “how long do hard inquiries stay on your credit report?” while others aren’t even aware of what a “hard inquiry” is, much less how or why it would have any impact on their credit reports.
The whole subject can be complex and confusing, and there are a lot of sources of information out there that disagree with each other. As you know, here at, we’re all about the unbiased, unvarnished truth. In that vein, we’re going to provide the answer to the question that brought you here, in case that’s all you truly need. But, then we’ll look into some of the important factors that affect your credit score so you have a thorough understanding of “hard inquiries” and what their impact is.

How long do hard inquiries stay on your credit report?

Hard inquiries will appear on your credit report for up to two years from the date of the inquiry, however they will only have a negative impact on your credit score for one year. The number of hard inquiries on your credit report accounts for approximately 10 percent of your total credit score.
Contrast this with more serious impacts, such as a bankruptcy: these issues account for about 35 percent of your score, and they remain on your credit history for a minimum of seven years.
If the two previous paragraphs made perfect sense to you, feel free to stop reading now and check out other recent articles for more informative content. If not, read on for some more depth on what hard inquiries are and why they matter.

What are “hard” and “soft” inquiries?

In financial terms, an “inquiry” occurs any time a company, store, or individual looks into your credit report. But, the credit bureaus separate these inquiries out into “hard” and “soft” types to offer a more realistic and fair view of what you’re actually trying to do while working with these companies or people.
A “soft inquiry” occurs when your credit report is accessed, but not for the purpose of obtaining new or more credit. For example:
       You check your own credit report (or authorize a third party to do so) to check its accuracy
       A lender “pre-approves” you for a credit card or loan you didn’t ask for
       An employer carries out a pre-employment background check
       A utility checks your credit report as part of the installation/new account process
In all these cases, you and others have legitimate (usually limited) access to your credit report for confirming your identity and other purposes. But, no soft inquiry is going to result in you being approved or denied for credit on its own. Therefore, soft inquiries don’t impact your credit score at all.
A “hard inquiry,” on the other hand, will impact your credit score. That’s because a hard inquiry only occurs when a lender accesses your credit report for the purpose of approving or denying a request for credit that you’ve initiated. This would include:
       Any credit card (including retail store credit cards) you apply for
       Any personal or business loans you apply for (unless your business is a corporation)
       A mortgage
       A vehicle loan
       Student loans
In all these cases, approval means you’re being handed more potential debt to use, so these hard inquiries will appear on your credit report and impact your score. That way lenders get an accurate picture of the amount of credit you already possess and they can make an informed decision on offering more.

Does that mean hard inquiries are always bad?

No, a hard inquiry is not inherently bad.
Each hard inquiry will likely result in a drop of just a few points in your credit score, but (as noted above) that effect only lasts a short time. Its purpose is to differentiate those inquiries that can result in additional credit from those that cannot. As such, they serve an important role, and can be strategically managed to make sure your credit report remains clear and accurate.
However, there are definitely circumstances in which hard inquiries can become a negative thing, pulling down your credit score dramatically and even getting in the way of important purchases.

When are hard inquiries bad?

If you pile up multiple hard inquiries in a short amount of time, the combination of small subtractions can really hurt your credit score. Losing a few points from your credit score each time isn’t the worst of it, though. Numerous hard inquiries in a short time can cause the credit bureaus to take notice, doing more damage.
For example, assume you’re just innocently shopping around for a good offer on a credit card, but while you’re gathering information you go ahead and apply for five different cards in a three-week period. You may not even have any intention of accepting or keeping all those card accounts open. But, since you’re initiating them, every credit card application you submit will result in a hard inquiry. Too many applications for new credit can send up a red flag for the bureaus: it seems to indicate you’re facing financial problems, or you’re spending recklessly.
If that’s the impression the credit bureaus get, your score can go down even more. While the bureaus tend to overlook large purchase inquiries that come in clumps (like 3-5 mortgage inquiries, for instance) — because they recognize you’re shopping around for the best interest rates — smaller credit applications can’t be overlooked that way.
The better option for smart consumers is to strategically space out any applications for new credit to give time for the hard inquiries to fade from your credit report.

The Importance of Having Good Credit

Having a good credit score can affect many aspects of your life. Listed below are just some of those:

  • Qualifying for a Mortgage or Refinance
  • The Monthly Payment on your Mortgage
  • The Interest Rate that you Pay on Credit Cards
  • The Interest Rate that you Pay on Auto Loans
  • The Interest Rate that you Pay on Personal Loans
  • The Rate that you are charged for Insurance
  • Whether or Not you are approved to Rent
  • Being approved for Phone, Electricity or Cable
  • Whether or Not you get that Job that you want
  • To qualify for or maintain a Security Clearance
  • Guarantor of a Business that you want to start

If you have children that want to go to College and you want to help them by co-signing for student loans, renting an apartment for them while away at school, or help them with their living expenses, your credit as a guarantor or co-signer will be important in helping them.

Never before has your credit been as important as it is today.

Your Credit Score Affects Your Insurance Rates

Your insurance rates can be effected by your credit score. Many insurance companies, such as your auto insurance company, may use credit scores to determine the risk involved in insuring you. You may have never had an accident, filed a claim or even had any traffic tickets but your insurance rate can be higher if you have poor credit and a lower credit score. Insurance companies may also review your credit information when renewing your policy and raise your rates if your credit score is lower than the score that they obtained in your previous renewal or when you first initiated the policy. The reasoning is that consumers with poorer credit and lower scores statistically make more claims (as a risk group) and will result in the insurance companies paying out more in claims.

No Courses Offered in Credit Education

Growing up and going to school we all saw courses offered in math, history, social studies, economics, etc. I do not recall seeing courses offered in how to understand and manage your credit. In today’s society, almost everything that you want to do, rent an apartment, buy a home, finance a car, get a good job requires someone reviewing your credit. Your credit and your credit score have never been more important or a more intricate part of your life than it is today.

Credit Education is the Key

This blog teaches you more than just Credit Repair - It is a course in “Credit Education” that you can use throughout your life to live a better life.

Knowledge is Power

There is an old saying: “Knowledge is Power.” This is especially true when it comes to managing your credit. To have total control over your credit you must know exactly how the credit bureaus and creditors work and “think". The credit bureaus are, in reality, repositories of information provided to them by several different sources. Credit Bureaus collect information provided to them by the creditors that report to them on your accounts, by gathering information from public record sources such as the courts, from other local, state, and federal databases, and by information that you provide to them either directly or obtained from applications that you make to creditors. Many times, this information may be recorded or reported incorrectly, and this is why as consumers we are allowed to challenge or dispute these items as is allowed by provisions of the FCRA (Fair Credit Reporting Act.)

Cyber Threats and Privacy

Identity theft and hacking are growing at super exponential rates. It won’t stop and will only get worse. The fact is that most Americans are already compromised and they don’t even know it. It is estimated that over 80% of all residential households in America do not even have their WiFi router secured properly.

Wireless Card Scanners
Cyber Threats and Privacy

These are hackers that will scan your credit card in your pocket at coffee shops or other unassuming public places. They have special devices or programs that can “see” the RF chips embedded in your credit card on their laptops. This happened to me once but since I was set up on banking text alerts I was able to stop it and get my money back. I now use radio frequency shield card slots and wallets to prevent this from happening again, which you can buy on Amazon.

Online Banking

Make sure your network is secure and the browser is set to HTTPS when logging into your banking account. One small compromise and someone can steal your info, and ruin your credit. In fact any website you submit personal info you should start with HTTPS (Secure) URL.

In addition, over 80% of all U.S. homes do not secure their WiFI router. Most people never change their factory default router login and password. Any hacker that scans your neighborhood (and yes they still do this) can generally determine what kind of router model you have from the SSID default broadcast, and then check to see if they can login using the default pass and username. If a hacker is able to break into your home network, you can have some serious compromises. This often leads to cases of identity theft and fraud. Most often you will not know about it until well after the comprise has occurred and someone has used your information to steal money or your identity.

The cyber threats are VERY real and much worse than you think; they are only getting more complex everyday as hackers develop new technologies and methods to scan for weaknesses and infiltrate unassuming homes, people and businesses.

Shred your mail, bills or paperwork that may have sensitive personal info on them. You would be surprised to know that people still rummage through garbage to find data to sell or use for gain.

Use Secured Email

Almost everyone sends sensitive info via email and text not even thinking that someone can scan that data in “cyberspace” if they are looking for it. Since most people are now using Gmail, Yahoo Hotmail, etc. There aren’t very many secure options for email if you are not using Thunderbird or Outlook. However, there is one company in Switzerland that has a service called

It a browser email account with mobile phone apps that send and received encrypted mail and is very easy to use. They have a free account version and a paid account version, which is approximately $6 per month. If you send personal data via email such as tax returns, social security
numbers, credit card numbers.

Commercial Mailbox

Use a commercial mail box, such as the UPS store mail box, for receiving your postal mail instead of receiving it at home. UPS Stores are very flexible and can even forward your mail wherever you are. Many thieves still steal mail in an attempt to find social security numbers, checks, or anything they can use to extract money or credit from a victim.

Fraud and Identity Theft Prevention

Once you have established a quality credit score, you need to do your best to protect it by taking extra steps to prevent identity theft and other types of fraud. The following tips will help you do so:

Respond to to voicemail intelligently: If you receive a voicemail from someone claiming to be from your credit card company or bank, only respond by calling back the number that is printed on your card. This is the only number you can guarantee won’t lead to a fraud scenario. The same goes for emails, even if they appear to be legitimate, you should only ever contact your bank or credit card company through obviously official channels that you instigate to ensure they are legitimate.

Take extra care with signatures: Not many people are aware, but you can actually sign your credit and debit cards with the phrase “see identification”. While this will force you to show your ID much more frequently, it will also prevent anyone who is attempting to use it illegally from being able to do so. Unless they have a fake ID with your name and accurate signature they will be out of luck.

Be frugal with your credit card number: Ninety percent of the time any website that asks for your credit or debit card number “for identification purposes” has only dubious intentions in mind. Unless you are planning on buying something from the site you are going to want to avoid providing this information. The fever places that your personal details are available online the less risk you run of falling victim to fraud.

Be diligent about your privacy: Even if you have already set them to the max settings, it is important to check both your browser and social media settings on a regular basis to ensure they are as you left them. You never know when an update could have come along and reset them or changed something else that affected them in some way. It only takes one slip to allow someone with intent through, which is why it pays to stay vigilant. Likewise, every time you visit a secure website, take an extra moment to clear your browser’s cache and history to prevent anyone from tracking down personal information that way.

Unsubscribe sparingly: If you receive an email newsletter and you aren’t sure where it came from, never click the unsubscribe button. This will let the spammer know that they have a live email address and they will redouble their efforts, at best, or initiate additional tactics to procure your private data now that they have your email address, at worst. Even if the spammer has no ulterior
motives than to get you to read their newsletter you are always better off just hitting the spam button and forgetting about it.

Be aware of online store security: When you are shopping online be sure to make a point of never entering sensitive information if the website isn’t secure. You can determine if a site is using a secure connection if the web address starts with https or if it features a padlock icon in the top right corner. Either of these are an indicator that the website is encrypted which will make it much more difficult for fraud to occur based on the transaction. Entering your details via a standard http connection is
little more than asking for trouble.

Have varying passwords: In addition to the obvious, such as not using birthdays or loved ones’ names as passwords, it is important to have varying levels of password security for the most secure results. You are going to want to have at least one password for low-security sites that you aren’t terribly worried about being hacked, a more secure password for online stores and the like and a separate password entirely when it comes to banks or credit card websites that are more complicated
still. You should never store your passwords anywhere on your computer or anywhere in real life where other people, with potentially malicious intent, are likely to have access to and, if you must write them down, don’t keep them near your computer.

Understanding Your Credit Utilization Ratio

Credit Utilization RatioHave you ever heard the phrase, too much of a good thing , when something went wrong? Well, this adage definitely applies to your use of credit cards. Specifically, spending too much on your credit cards can be too much of a good thing when it comes to your credit score. Whether you have one credit card or five, whether your credit limit is $500 or $5,000; lenders expect you to spend responsibly. Part of that means not using too much of your available credit.

In fact, this notion of limited spending is one of the primary factors contributing to your credit score. Commonly referred to as a credit utilization ratio, its the amount of outstanding debt you carry on your credit cards, when compared to your overall credit limit. A utilization rate of more than 30 percent may you to lose several points. On the other hand, using less than 30 percent will earn you points.

Calculating Your Credit Utilization Ratio

Its a good idea for you to calculate your rate, so you know where you stand and can make any needed adjustments. To do so, divide the total amount of your credit card balances by your total credit limits.

For example:

  1. Lets assume you have two credit cards, each with a credit limit of $10,000. Your total credit limit would be $20,000.
  2. Now, lets say you are carrying a balance of $4,000 on one card and $6,000 on the other. Your total balances add up to $10,000.
  3. To calculate your rate you divide your total credit balance of $10,000 by your total credit limit of $20,000, to get a credit utilization rate of 50 percent.

How High Should My Credit Utilization Be?

A credit utilization rate less than 30 percent is most beneficial to your credit score. If that's easy for you, try to get it less than 20 percent! For those who are already using more than whats recommended, it wont necessarily be easy, but focus on paying down your debt. While its challenging to pay off debt, it will definitely be worth it! A low utilization rate is so significant to your score, you will be glad you got rid of some of that debt.

Manage your credit utilization rate by following a few suggestions below:

  • Know what you spend on your credit cards each month. If you are already exceeding the recommendation utilization rate: stop spending and start paying it off!
  • Know what your total credit limit is, so you can spend accordingly.
  • Never max out your credit cards, even if you pay your bills off completely, it could still be reported to the credit bureaus.
  • Utilize cash and debit cards to round out your spending.

For as significant a factor to your credit score as this is, it is a fairly easy one to control. Check your limits and then be sure to keep your spending in check. If you've got any balances, work to reduce them to a recommended level.

3 Common Debt Collection Myths

If you worry about how you are going to pay down large sums of debt, you are not alone. Millions of Americans are unsure how their debt impacts their overall finances, their credit report, and their future. Don't let it get to you. The key to overcoming debt is to drill down and put a debt management plan in place.

A big part of putting your worries to rest is taking action. Order a copy of your credit report, so you can analyze your complete debt load. Take a look at your current debts: credit cards, mortgages, student loans, auto loans and any others. While all debts must be repaid, debts secured by an asset, such as your home or car, are considered more favorably than credit card debt, for instance. Keep this in mind when focusing on your repayment plan.

Once you know exactly how much you owe, create a monthly budget that factors in your debt repayments. Start thinking about how you will prioritize your debt repayment. Perhaps you want to first pay off credit cards with the highest interest rate.

Next, find areas you can afford to cut down on, such as unnecessary cable or cell phone packages, and work to optimize the amount you put toward paying down your balances. Making more than the minimum payment on credit card bills is essential. You will have to decide if you want to spread the wealth or focus strictly on getting rid of one debt as quickly as possible. As your debt balances decline, lenders will view your credit report more favorably and your credit score will likely improve.

At some point along the way it may feel like you're going at a slow pace. Keep in mind that paying down debt takes a long time, but your efforts are important. If you are seeking to track your progress, try credit monitoring. You will  receive updates to your email or mobile device upon changes to your credit score.

Dealing with debt collection agencies can be an unsettling experience, largely because it is unfamiliar territory. People may feel ashamed or humiliated for their mistakes and misunderstand the way debt collection works.

Debunking some common debt collection myths may help you make informed decisions while you get your credit score back on track.

Myth #1: When I pay off a debt in collections it is removed from my credit report

Debts that are sent to collections remain on your report for a period of seven years, regardless of whether they are paid or unpaid. The history on your account payment is also recorded, including any delinquencies over the years.

When you pay the total balance owed, the status of the collection account will be updated to paid status, however, both the original and collection accounts will remain on your credit report until seven years since the date of the original delinquency.

Myth #2: Only large balances are sent to debt collectors

There is no minimum amount for a debt to be passed on to collections.  Even an unpaid parking ticket for twenty dollars can be escalated, so no matter how small the bill, it’s best to pay it.

Myth #3: The collection amount will be the same as the original balance

When lenders sell your debt to a collection agency the balance listed on your credit report may increase, because the debt continues to accrue interest and other fees. As a result, the total amount listed on a collections account may be greater than that on the original account.

Unpaid debts that are sent to collection agencies can lower your credit score, making it more difficult or costly to obtain financing. If you are trying to repay a debt that’s been sent to a collection agency, the important thing is to improve your behavior over time.

Lenders will not only look to see that you have repaid your debt and made good on the account, but that you have sustained a good payment record – indicating that you have overcome any past financial hardships and are equipped to manage your debts responsibly.

What is the Credit Card Accountability Responsibility and Disclosure Act of 2009?

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (otherwise known as the CARD act) was enacted by Congress to protect consumers from unfair lending practices, but some say the measure is falling short on the promises it made, according to Smart Money.

The most recent complaint voiced by consumer advocates relates to a rule that dictates how issuers must allocate payments to credit cards. The initial payment allocation proposal would have mandated that lenders apply all payments to the balance with the highest interest first. However, this proposal was altered to a weaker rule that requires issuers to apply any payment over the minimum monthly bill to the highest rate first.

For example, one credit card may charge a higher interest rate for different types of transactions, meaning that the rate for a standard purchase may be lower than the rate for a cash advance. If a borrower’s required minimum payment is $50 and they send in $75, the issuer must only apply $25 to the transaction with the highest rate. The issuer will have discretion over where to apply the required $50 payment, forcing the borrower to carry a balance for a longer period of time.

Despite the current allocation method, the CARD Act has been successful in two of its promised provisions, according to the National Foundation of Credit Counseling. One disclosure rule forces issuers to provide a breakdown to consumers on how long it will take to pay off their balance if they only make the minimum payment. An NFCC survey shows that the rule, in addition to another law that forces lenders to provide a toll-free number to a credit counseling service on a consumer’s statement, has been beneficial to individuals.

“This disclosure aspect of the CARD Act appears to have had the intended result, in that 25 percent of more than 2,000 respondents said it inspired them to pay more each month, while 12 percent indicated that it prompted them to reach out for help to the credit counseling agency listed on their credit card statement,” NFCC spokesperson Gail Cunningham said.

Consumers who carry credit card debt should obtain a copy of their credit report to examine their debt-to-credit ratio and how it may be impacting their credit score. Though it may be difficult financially, consumers should try to make more than the minimum payment each month to pay off their balance and slowly improve their financial standing.

By changing the information available on their monthly bills, the new credit card law may also inspire customers to seek credit counseling before their debt gets out of control, according to a release by Accelerated Debt Consolidation, Inc.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 currently requires that lenders include a toll-free phone number for credit counseling and debt management services on monthly bills. They must also include a timetable showing how long it would take a consumer to pay off their debt if they only made minimum payments.

“This creates several advantages for the consumer,” Young said. “If credit consumers begin contacting credit counseling and debt management agencies when they are only up to 30 percent of their credit limits for example, their options for reducing their debt will be greatly improved.”

Cardholders with high rates on their balances would be able to transfer the debt to accounts with smaller balances in the debt management program. Or they can transfer money to accounts with better rates, allowing them to reduce debt faster. Carrying low credit card balances and paying on time can positively contribute to a consumer’s credit history.

Other provisions within the Credit CARD Act prohibit lenders from raising interest rates, fees or terms unless they give customers 45 days’ advance notice.

Top 7 Reasons Your Credit Score Could Drop

From carrying large balances to having your credit limit cut, discover 7 reasons your credit score could drop.
Credit Score Drop

Reason #1: Large Balances

The closer you are to reaching your credit limit and maxing out your credit cards, the higher your credit utilization ratio will be. Ideally, you would pay the balance on credit cards in full every month, but that’s not always doable. Your goal should be to keep your balance at around a third of your credit limit to avoid risking a dip in your credit score.

Reason #2: New Credit Applications

Inquiries may not make a big splash with your credit score, but multiple inquiries, like applying for credit cards or even signing a cell phone contract can impact your score. If the credit line application was declined for any reason, checking your credit score wont hurt you and may be a good idea if you plan to apply for additional lines of credit.

Reason #3: A Public Record was added to Your Credit Report

From judgments to bankruptcies, public records can curtail your credit score. Depending on the notation, these negative entries can stay on your credit report from 7 to 10 years, causing your credit score to drop. Past due on child support or haven't paid your taxes? Even these types of financial responsibilities might become public records if they aren’t addressed timely and appropriately.

Reason #4: Inaccurate Information on Your Credit Report

Because lenders report information to the national credit bureaus, its good to check the data is correct across reports from all the bureaus. Lending companies do not have to report their information to each bureau. Sometimes this causes credit reports to differ from bureau to bureau.

Be sure lenders have accurately reported timely payments, closed accounts and other information. If you find inaccurate information on your credit report, there are steps you can take to have the data corrected.

Reason #5: Late Payment

Missed payments are a no-no, especially when it comes to your credit report. Past due marks in your credit history can lower your credit score, especially as the length of time theyre late increases.

Reason #6: Past due account sent to collections

When your bills go unpaid, your lender may send your past due account to a collections agency to help collect whats owed to them. This means double-trouble for your credit score, as the missed payments and collections notation both make it extremely likely that your credit score will drop.

Reason #7: Closed Credit Card Account

Your oldest accounts are more valuable than you may think! If you’ve paid off a balance on a credit card, wait before closing your account. Once you close an account with a long solid history, you are ditching the positive aspect of length of time you’ve held credit, thus potentially lowering your score when it cycles off of your credit report.

Once you’ve checked your credit report and pinpoint the cause of your lowered credit score, don't be afraid to contact your lenders to work out an agreement that may help get your credit score in better shape.

But, despite these things that can make your credit score drop, the good news is that consistent, positive money management habits can often eclipse the credit score-sinking factors over time, so don't give up! You can also

How To Stop Debt Collector Calls

Stop Debt Collectors CallsWhile it is always going to be a better choice to deal with creditors directly rather than waiting for a debt to reach collections, if it does reach this point it is important to keep in mind that you still have options thanks to what is known as the Fair Debt Collection Practices act.

Ask for details in writing: Within 5 days of making contact, a debt collector is obligated to send you a written notice outlining the amount of money you owe, who you owe it to and how to dispute the claim. Most debt collectors won’t do this automatically, however which means the first contact you have with them should include asking for this information and nothing else. The goal of the debt collector is to force you to confirm that you will pay the debt or make a payment, and not having all of the details in front of you can make it easy to say the wrong thing and wave many of your rights without even realizing it. What’s more, asking for a copy of the details will prevent them from contacting you again until you have received them, giving you some time to get your defenses together if you have been caught off guard.

Dispute the claim: Once you have received the details of the claim in writing, the next thing you are going to want to do is to dispute the claim using the methods discussed in previous chapters, regardless of whether or not you believe you owe the money in question. This will put the onus on the collection agency to verify the debt, which is far from a sure thing even on debts that you do
owe. You have 30 days to send this letter from the date you received the details which means that using certified mail is key. Be sure to ask for a delivery receipt as nine times out of ten the collections agency will deny they received your request. Once you send this letter and notify the collection agency of this fact, they cannot contact you again until the debt has been verified. They also have to stop all reporting activity, make sure you demand this in the letter.

Keep track of everything: As discussed previously, debt collectors are limited in how they can approach you but, in most cases, will try and skirt these restrictions as much as possible in an effort to get you to agree to pay the debt or set up a payment plan. As such, it is in your best interest to take detailed notes every time you speak with them and keep anything they send you so you can look it
over for violations at a later date.

Illegal activities not previously covered include speaking to anyone but you or your representation about the debt, using abusive language, misrepresenting the amount of the debt of making false claims about legal action, seizing property or garnishing wages if they don’t intend to actually follow through. If they do any of these things, then the issue of the amount of debt you owe will essentially become moot as you will be able to take legal action against them and even the threat of doing so will often be enough for them to forgive some or all of your debt entirely. Be sure not to mention that you are keeping track of your conversations as this will cause them to be on their best behavior and decrease your potential for leverage.

Speak as little as possible: Everything that a debt collector says is for the purpose of collecting on the debt which means that the less you say, the less they have to use against you. Remember, regardless of what they may say up front, they are never really your friend, nor do they have your best interests at heart. They work on commission which means the more they get from you the more they will make. Never commit to anything, never agree that you owe the amount in question, always mention that you are considering bankruptcy and discuss payment options only if you intend to follow through. If they determine that you are unlikely to pay, and the amount owed is less than $2,500, they may give up and consider you more trouble than you are worth. While the debt will remain on your credit report for the next seven years, it might be worth it, depending on your current financial situation.

Be aware of time limits: Once you receive the details from the collection agency, you will need to look into the time-frame which they have to collect on the debt based on where you live (between three and six years in most cases). Once this period of time has passed they can no longer take legal action against you. It is important to be aware of these limits as if you make a payment after this period of time, some states will allow the clock to be reset, the same can be said for acknowledging you owe the debt or for signing up for a repayment plan.

How To Negotiate and Settle Large Debts

Debt SettlementWhile creditors would like you to think otherwise, the fact of the matter is that any debt that you have is negotiable. What’s more, regardless of the amount, 90 percent of creditors are going to be willing to take a lump sum now over a promise to pay at a later date. When it comes to negotiating large amounts, the following tips may make it easier to come out ahead.

Have a story mid stick with it: The person you are dealing with isn’t going to be interested in your life story, but they will need to know who you are unable to pay in full right now. This means you are going to want to have a story that outlines your hardships and explains what you are doing to get back on track. You will want to distill that story down to the most important points and never waver from it throughout the negotiation process.

One particularly useful strategy is mentioning that, due to financial hardship, you will soon be meeting with a lawyer who specializes in bankruptcy. This will almost always make creditors more willing to strike a deal as if you file for bankruptcy there is a chance that they will get nothing.

Stay calm: It is important to keep in mind that, no matter what the creditor says, you have the upper hand as the debt you have is leverage over them. Stick to this fact and, no matter what they say, do your best to avoid losing your temper. If you make a scene or cause drama then the creditor will know they are getting to you and will be less willing to make a deal. If you feel yourself losing it, simply tell them that you will call them back and end the call as quickly as possible. If you find the creditor’s behavior hard to stomach, simply tell them you are recording the conversation which will put them on their best, and most professional, behavior.

Always ask questions: If the creditor threatens you with a lawsuit or with the loss of property, above all else it is important that you don’t let these threats frighten you into making a poor decision. Instead, it is important to ask questions as this will often reveal if the creditor is bluffing or not. For example, if they threaten you with a lawsuit, simply ask when you can expect to be notified of it. Keep notes of these threats as they are often times illegal as creditors are strictly limited as to how they can approach debt, specifically to protect consumers.

Likewise, you are going to want to take notes every time you speak with a creditor including the name of the person you spoke with, the date and the things that were discussed, especially threats. There is typically a statute of limitations as to how long the creditor has to collect on a debt, which varies by region, and they will likely become irritated as that time period approaches.

Avoid agreeing to a payment plan: If you agree to a payment plan you will always end up paying more in the long run then if you manage to scrape together a lump sum payment. Depending on the amount you owe, even as little as 30 percent might be enough to satisfy the creditor assuming it is getting close to the end of the time-frame they have to collect on the debt and you have stuck to your
story about financial hardship and bankruptcy. Never be afraid to offer a low-ball number, the worst that can happen is that they refuse to take it. If you do end up agreeing to a payment plan make sure you go over your expenses with a fine-tooth comb and ensure you can afford to make the payment every month to avoid finding yourself back in the same situation.

Try and deal with creditors: If you know you are going to be unable to make payments on a debt you have accrued, do your best to come to an agreement with the creditor directly, before the debt is sent to collections. The creditor is always going to be easier to negotiate with than a third-party debt collection service.