Debt Consolidation Blog » credit score

Can paying off debt harm your credit score?

Debt Planner — Wed, 15 Jun 2011 14:22:33 +0000

The FICO credit scoring system can sometimes seem to be a bit of an anomaly. The rules and guidelines of maintaining a high score can sometimes seem obscure and conflicting. Many experts advise that pulling your own credit report will not harm your score while inquiries from several different companies will. One thing that seemed certain was that paying off old debt would work towards boosting the overall credit score. However it seems that is not a hard and fast rule. Paying off old debt can sometimes even hurt your credit score if not done correctly. To make sure your score is at the highest point, it is important to find out exactly what effect your actions have on your overall score.

In order to understand how certain payment strategies affect your score, it helps to know how FICO calculates your score in the first place. Although the exact formula is not known, experts surmise that roughly 35% of your score is based on payment histories while another 30% relates to the amount currently owed. This means that any payments of delinquent accounts or charged off debt will not affect the history of late payments in this area. In fact, beginning an entirely new payment plan for a previously charged off debt can make the debt appear more current than it actually is. For this reason, paying on a charged off debt can sometimes negatively affect your overall credit score.

In the case of debt that is simply delinquent or overdue, making payments to bring the debt current will affect your score in a positive way. Although bringing the debt current won’t erase a past history of late payments, it can still boost your score by reflecting that the account is current and regular payments are being made to keep it that way. At times a debt may be transferred to a collection agency if too much time has elapsed. In this instance, the collection agency may offer to settle for less than the total amount owed. There can be some confusion about the positive or negative impact of settled debt. In general it depends largely on how the company reports the payment to the credit reporting bureaus. If the debt is reported as paid it will have a positive effect on the credit rating, however if it shows up as settled, it may lower your score. This can be discussed during settlement terms with the collection agency but in the end there is no consumer control over how the debt shows up on the credit report.

The best strategy when trying to eliminate debt from your credit report is to review each item separately to see what standing it is in and what effect your payment may have on your score. It is possible to consult state laws and uncover whether the debt is statute barred meaning that no further collection activity can commence on that particular item. If this is the case, you may be able to contact the creditor to have the debt paid off. If the debt is not statute barred, then any contact with the creditor may bring the debt up as current and lower your score. Examine each item on case by case basis to ensure that your payments aren’t doing more harm than good.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

Will debt consolidation affect my credit score?

Debt Planner — Tue, 28 Sep 2010 01:07:56 +0000

During the present economic slowdown, many Americans are dragged into debt as they are habituated to spend money as much as they earn without savings. This attitude of Americans continues since ages and as a result is experiencing when there is slowdown in economy and rise in unemployment rate.

It is very hard to change the habit of spending suddenly when someone has reduced income too and that leads to mounting in debt as they start borrow money to cover their expenses.

For those who can not control their spending habits, it is necessary that they take help of debt solutions. There are many ways to find debt free and debt consolidation is one such alternative to become debt free. When people think of choosing debt consolidation they often come up with one doubt in mind – will debt consolidation hurt my credit score? And many people often wonder if that really works.

Well the answer to the questions will lot depend on the company that work for debt consolidation. Just like anything, there are many scammers who are waiting to trap the people and drive away with their money dragging you further deep into hole of debt.

On the other hand there are many debt consolidation companies that work genuinely for their customers and help to get out of debt. If you are working on multiple of debts payments every month then debt consolidation might be your debt solution.

Debt consolidation will not impact your credit score as it only involves paying of the existing debt with new debt. It will never impact your credit ratings if it is done in a correct way and in turn you can reduce your monthly debt repayments by taking the lower interest rate debt to pay off the higher interest rate debt.

It will not impact your credit score in any way because it does not require missing payments to proceed further. In turn it helps the debtor to pay off the debt with out any stress as the debtor requires managing only one creditor that is debt consolidation loan.

On the other hand the impact that caused to your credit report will depend on several factors. First, when you pay off the existing debt with new debt, you need to think whether the old accounts should be closed or not. The decision to close or remain active should be taken by taking credit score into consideration.

If you close older accounts that will be reported on your credit report as closed. Reporting closed on your credit report meaning they are closed by the creditor and in turn will impact your credit score. Hence when closing the account request your creditors to report credit rating agencies as the accounts are closed on your request.

Second, if the debt consolidation involves negotiating with creditors in an effort to reduce the debt will have negative impact on your credit report because it will be reported on your credit report as debt is negotiated.

Note: Bottom line is that debt consolidation may have a negative affect on your credit score in some cases.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice

Can I maintain my credit score even in debt?

Debt Planner — Fri, 29 Jan 2010 14:00:10 +0000

Credit score is important for financial life of Americans. When you don’t maintain credit score, it may affect your chances of getting credit in future like credit cards, mortgage or any other type of loan and interest rate it carries. Establishing a good credit history can be toughest task one can perform. On the other hand if you don’t have enough credit score, many lenders aren’t willing to grant you credit at the same time how can you establish credit if no body is going to give you credit?

When you are having bad credit score and trying to establish it, keep yourself away from opening new lines of credit and try to maintain the payments on time to existing debt. Building, improving and maintaining credit score is daunting task especially when you are in debt.

Debt is nightmare of every American especially during the present economic turmoil as everyone is aware of the fact that living with too much of debt could ruin the financial well being of the person mounted in debt. Especially, after the downturn in last couple of years, came to know by one who is not aware of the impact caused by high level of debt negatively on their finance in future and present days.

For example, loss of job is a horrible condition added if you are struggling while repaying high interest debt and maintaining living expenses. Therefore, in such situation everyone is trying to get out of debt to maintain their standard of living in future. For this reason, no one could afford to put it off the debt for another day as it could lead financial health. If you are in such situation of and have not taken any measure to have control on debt which leads to unfavourable conditions then you are at the right place as in this article I will let you know how to manage credit score even in debt.

First, before taking any action on your debt, sit down and assess where you actually stand in terms of debt. To get clear information start with records or statements of your financial obligations and many people will be taken by surprise when they come to know as how much money they owe and how much it is costing them actually. In addition, penalties levied each month if at all you are not paying bills on time. Start listing all you debt in order of high interest carrying debt. Once listing, then determine if at all you have any resources available to begin repaying debt. For better results start applying this principle to one account at a time.

Regardless of what method you choose to apply for paying debt, the only way to avoid the problem in present and future, is changing your spending attitude. For majority of people debt problem actually arises only when they don’t have control over personal finance. In order to avoid such situations, every person must accept the fact that spending beyond the necessities will obviously lead here. If you were to repeat same mistakes in future even though you get out of debt right now, you may find yourself dealing with same kind of problems down the road.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.

Is medical debt going to affect my credit score?

Debt Planner — Wed, 27 Jan 2010 01:25:19 +0000

Medical debt is one of the common debts that many Americans are incurring in these hard times. There are many misconceptions about delinquent medical bills in particular with respect to credit score. As many people are falling delinquent on bills these days due to higher unemployment rate prevailing across the nation, I come across many people asking about how will the medical debt is going to impact your credit score. Therefore I decide to important facts about medical debt.

First of all medical bills are not reported to credit reporting agencies unless you fall delinquent. After you being delinquent on medical bills, the hospitals or doctors hand over your debt to collection agencies as they can’t recover the amount from you since long time generally for 6 months. Such bills will normally show up in credit report as a collection account with type mentioned as medical. With this action, needless to mention, your credit score will be affected. The extent of its impact will depend on your credit history and to the amount of your medical debt.

Many ask how long does the delinquent debt will stay on your credit report. As medical debt is treated similar to other bad debt, it is treated similar to bad debt. Meaning it will be on your credit report for 7 years. The statue of limitations is similar to those of written contracts. That means the creditor can attempt to collect from the borrower as per the guidelines of written contract from the date of its recording.

The unpaid medical bills similar to other debt will affect the credit score and in turn affects your future borrowing capacity. For example, if you are looking for a mortgage, then it will impact the chances of mortgage application being accepted by the lenders as your credit score will be dropped with delinquent medical debt reported to credit rating agencies once your account is in collection. The impact will be much more when you have credit score lower than minimum required score. But, one thing to be mentioned, your medical debt will not go into collections when it is below $400, as the lenders wont bother about it. As long as you maintain credit score above 580, small debt will not affect much your chances of getting credit.

Another affect of medical debt is on your debt to income ratio. The impact will be much when you have huge medical debt unpaid, which is considered as large bad debt. Its impact will be known when you apply for the mortgage because the debt to income ratio is calculated when processing your mortgage application. In order to accept your mortgage application you need to pay off the medical debt and submit the proof of payment to mortgage lenders. If you can’t do this, then certainly you won’t be able to get the mortgage. At least, you must pay off the debt with monthly instalments as part of your recurring debt expenses.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.